Like the rest of the livestock sector, the dairy industry benefitted from falling feed costs in 2013. Milk prices were higher, compared to 2012, even with higher milk production for most of the year. Dairy product exports were booming in 2013, helping to support higher milk prices. Continued strong exports and low feed costs will be the key for 2014 producer profits.

Just a short decade ago, U.S. dairy exports were small enough to be relatively meaningless in the big picture. Dairy product exports were valued at about $500 million dollars in 2003. The dairy industry exported products valued at more than an estimated $6 billion in 2013.

Exports increased for the year across all major product categories. On a milk solids basis, the U.S. exported the equivalent of almost 16 percent of milk production in 2013. Even though the percent going overseas is much smaller in volume than domestic milk use, on the margin, export markets have provided a home for increasing U.S. milk production.

U.S. producers have benefitted from shorter milk supplies in the rest of world, including large competing exporters. Milk supplies will likely recover in those countries, leading to a much more competitive export market in 2014.

Milk production in 2014 is estimated to total close to 204 billion pounds. That would be about 1.2 percent more than in 2013. Higher profits will provide an incentive to increase production over the course of the year, particularly if feed costs remain manageable.

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Increased milk production is expected to pressure milk prices lower. But it may be later in the year that the combination of increased production and stiffer export competition begins to show up in lower prices. For the year, the U.S. all milk price may average $1 per cwt below the 2013 average, with most of the decline happening later in the year.

Of course, market growth potential is not all exports. While the U.S. market is often thought of as a mature market, there are opportunities for growth. Finding the next “big thing” could boost milk demand and support prices. Those “big things” often seem to be surprises and have longer term price supporting effects. More robust overall economic growth would certainly boost domestic demand in 2014.

Also of interest:

The 2014 economic outlook: slow walk to recovery continues

Southwest Ag Economic Outlook

Southwest outlook: Some relief in input prices