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Domestic demand supports U.S. dairy industry

Cheese and butter demand helps U.S. dairy farmers' position.

The U.S. dairy industry has fared a lot better than other major dairy exporters due to very solid domestic demand over the past two years, Nathan Payton, director of dairy services at Informa IEG, told attendees at the 2017 Commodity & Feed Ingredients Outlook Symposium held last week in Minneapolis, Minn.

U.S. data show a 2-3% increase in per capita consumption of cheese, which has elevated cheese prices well above other major exporters.

“There was good demand even in the face of growing production,” Payton said.

In addition, butter has become the preferred source of fat in cooking, which he said has helped boost prices.

“We’ve seen very high butter prices in the U.S. Those prices have kept the U.S. dairy farmer in a better position than their competitors in Europe and New Zealand,” he said.

Rising prices in late 2016 have raised margins, but Payton said no significant change in the herd is expected. “It will continue the way it’s been moving,” he added.

As far global demand goes, Payton said it has been weak, considering where prices have been, but "we don't have a good explanation for" why that is.

This will likely continue for the remainder of the year and possibly into 2018 as well, he said. Overall, there will be modest growth in demand for global imports.

There could be a slight recovery next year as prices decline, he added.

Also, in 2018, New Zealand's dairy production will likely rebound, and production in the U.S. and Europe will grow.

“Dairy supplies will be higher than they are in 2016-17. With that, we expect to see some pressure on prices. It looks a little more bearish in 2018,” Payton said.

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