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The author is a research assistant extension professor in the department of agricultural and applied economics at the University of Missouri.

There are two ways to improve the poor financial environment that U.S. dairy producers face today:

  1. Reduce milk supplies
  2. Grow demand for U.S. dairy products
Reducing milk supplies has proven difficult even in the face of low producers' returns. For the first five months of 2016, milk production has expanded over 1.5 billion pounds relative to 2015. More growth in milk production is expected in coming months.

Therefore, demand growth for U.S. dairy products is essential to avoid pushing producer milk prices even lower. Although domestic use of dairy products has grown over time and should not be undervalued, most of the growth in domestic use has been due to population growth.

U.S. dairy product exports can help offset future growth in milk supplies. The important role that exports have played for the U.S. dairy industry is clearly seen in the fact that the percentage of U.S. milk production exported on a skim solids basis rose from 11 percent in 2009 to 19 percent by 2014. However, the stronger U.S. dollar has contributed to a reduction in the percentage of milk production exported in 2015 and 2016.

Though a stronger dollar is a challenge, international trade in dairy products has also been constrained as a result of trade barriers that exist in dairy markets around the world today. Continuing to reduce trade barriers will be important for U.S. dairy exports to maintain growth in the future.

The Trans-Pacific Partnership (TPP) provides one opportunity for dairy markets to become more accessible in key countries. Recent work by the U.S. International Trade Commission (USITC) projects nearly $2 billion in additional U.S. dairy exports by 2032 under the current TPP agreement. This growth in export value must be evaluated relative to greater imports of dairy products into the U.S., which the USITC estimates at nearly $0.4 billion in 2032.

While the exact effects of particular trade agreements remain uncertain, the investment made by the U.S. dairy industry today to open critical markets for U.S. dairy products will pay dividends for many years to come.

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(c) Hoard's Dairyman Intel 2016
July 11, 2016
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