Milk is one of the integral parts of my breakfast. Whether served as a full glass or mixed in with my favorite cereal, I have milk every day. Drinking milk is an old standby for parents: it develops strong bones and gives you the Vitamin D you need daily. This adage may gain new ground, because right now milk is incredibly cheap. Prices in places like Wisconsin are down a third from a five-year high. But why is it so cheap? Let’s take a look.
Shipping Out Isn’t Shaping Up
America exports roughly 15% of its milk production overseas. Yet, different countries have stopped importing American dairy. China, a major importer of American dairy, has an abundant supply that results in smaller milk purchases. It also does not help that economic sanctions against Russia have halted exporting to the Asian country. Exporting less creates a higher American supply than demand for milk. This overabundance of supply causes prices of milk to plummet.
Milk Means More…Competitors
While exports represent 15% of American milk sales, other countries are coming to play. China has begun producing more milk than it imports. Additionally, New Zealand is a major competitor, only adding to the growing milk production. Equally, this competition forces market prices to decrease. Therefore, the declining exports yet growing milk production by competing countries creates an atmosphere that demands unfavorable action to move milk off the grocery shelves (e.g. slashing prices).
The Cost of a Dollar
The rising strength of the U.S. dollar is another important factor to consider. A strong dollar may signal a stronger U.S. economy than seen in recent years, but that makes American dairy less attractive. Rather than spend loads of money on high-cost milk, importers might choose cheaper options from different countries. Reports of federal interest rates rising will only strengthen the U.S. dollar. Therefore, dairy prices may continue to drop due to less exporting.
Ultimately, low prices may be good for consumers, but American dairy farmers are already feeling the effects.