AgResource Co.’s chief grains and dairy analyst, Ben Buckner, thinks that the global dairy market has reached its peak. They are less than they were a year ago. Buckner spoke on December 8 during a Dairy Signal webinar put on by the Professional Dairy Producers.
“At the last global dairy auction, all dairy products were sold for an average of $1.64 per pound,” he said. “A year ago, it cost $1.95 per pound. A year ago, we were getting ready to start an extremely bullish pattern. The future of dairy around the world is very neutral right now.”
He pointed out that the world’s dairy continues to find a balance, even if it’s slow.
“There haven’t really been any problems with dairy demand so far,” Buckner said. “But we’re responding by making more milk in the U.S., parts of South America, and even Europe.” There are still problems with milk production in New Zealand, but the total amount of milk exported around the world is close to what it was a year ago because of more dairy exports from the U.S., he said.
“This long period of high prices seems to be affecting the cheddar market in particular, and we saw record-high production in the U.S. for the month of October,” said Buckner.
Buckner said that he has seen a small amount of demand destruction for butter. Since the middle of summer, butter stocks have stopped falling so quickly.
“High prices seem to be encouraging milk production in the U.S. and Europe, as well as cheese production in the U.S.,” he said. “We’re looking for the next thing that will push markets up, but we can’t figure it out yet. I think it’s up to Mother Nature to make sure there are enough raw materials over time.”
He also said that he is worried about the way dairy prices drop every year after the New Year.
“The U.S. and the rest of the world ate less dairy in the first three months of the year,” Buckner said. “In 2023, all markets are likely to stay volatile,”
Buckner said that overall, U.S. agricultural exports are going down. “Since the summer, there are fewer of them,” he said. “The dairy industry is doing pretty well, but the total amount of agricultural exports is 5% lower than it was a year ago.”
Exports of soybeans in particular have gone down. The same is true for wheat and corn.
Buckner said, “We are worried about the demand for U.S. corn, soybeans, wheat, and possibly dairy in the second half of 2023.” He said that he was worried about emerging markets.
“For the first time in a long time, the U.S. economy is still growing while the Chinese economy is not,” he said. “China has had a hard time keeping growth rates between 5% and 10% per year. The rate of inflation in China is negative, and the rate of inflation in the U.S. is, of course, very high.
Buckner said that the drought in Argentina is also a worry for him.
“For the third year in a row, Argentina’s growing season starts with the soil having lost a lot of water,” he said. Argentina is by far the world’s biggest exporter of soybean oil and meal, and it also sends out a lot of corn.
“If Mother Nature cooperates in the Northern Hemisphere in 2023, we might be able to solve all of our grain problems in one year,” he said.
In 2023, farmers in the U.S. will also have to worry about interest rates going up. Buckner said that the interest rates on U.S. farm operating loans are 6.52% and that the interest rates on real estate loans are 6.13%. These are the highest interest rates in 15 years.
