Milk Market Frothy

Dairy prices are bubbling higher, nearing a five-year high. The widely-followed Class III milk futures, which is used to make hard cheeses, recently topped 20 cents per pound for the first time since 2014. Prices are rallying due to stagnating production and renewed hopes for increased dairy exports to Mexico, Canada, and China.

Prices have been depressed for years as U.S. milk production rose faster than demand. Dairy cows are producing far more milk than they used to due to breeding, farm management, and improved nutrition. Meanwhile, U.S. per capita dairy consumption has been falling, driven especially by consumers moving away from drinking milk.

Adding insult to injury, trade disputes reduced foreign demand for U.S. dairy, which had been the sole factor keeping the industry afloat. Last year, prices fell below 14 cents per pound, a ruinous level for producers.

While this recent rally will inject life back into the industry, the rally is coming too late for many U.S. dairy producers. Over 20% of dairy farmers quit the business during the last five years, part of a larger pattern of farm consolidation and bankruptcies that has been plaguing farmers across the Heartland.