In 2016, US dairy farmers dumped 43 million gallons of milk, the largest recorded loss in at least 16 years, as production outran the plants able to process it

In the first eight months of 2016, US dairy producers and handlers discarded, dumped, or lost more than 43 million gallons of milk. The US Department of Agriculture’s data suggest that the volume was the largest amount of milk wasted in at least 16 years of comparable information. Some of the discarded or dumped milk went into fields, manure lagoons or animal feed. Meanwhile, some was lost along truck routes or discarded at processing plants. The Wall Street Journal report said the amount was equivalent to about 66 Olympic-size swimming pools.As raw milk is perishable, it cannot be stored indefinitely while producers wait for prices or demand to improve. Concurrently, dairy processors were dealing with large inventories of products like cheese. This resulted in a bottleneck in which some milk had little practical or economic destination, driven by the unceasing daily output of herds managed on continuous, year-round calving and lactation schedules.How a 2014 price increase fed the later glutThe imbalance was no sudden change. Instead, it had been building for more than a year. In September 2014, the US all-milk price reached $25.70 per hundredweight, which is equal to 100 pounds of milk. High prices encouraged dairy farmers to expand production, and US milk output subsequently rose to 208.6 billion pounds in 2015. This was 1.2% above 2014. Market analysts explained that dairy production responds slowly to changing prices because expanding or reducing herds takes time.The production response continued even after the prices began falling. By April 2016, the all-milk price had dropped to $15 per hundredweight, which had fallen sharply from the peak in 2014. Yet in June 2016, the USDA forecasted that annual output would refuse to bend, holding steady at a projected 212.6 billion pounds. Industry tracking noted that farmers could reduce some costs or remove less productive cows. Though, many costs associated with maintaining a dairy herd could not be avoided simply by cutting production.Another reason why output remained high was that the production costs were relatively favourable. The agency’s later review of 2016 found that feed prices had fallen during late 2015 and remained low through most of 2016. Milk production per cow also increased, and by the end of the year, the country had produced a record 212.5 billion pounds of milk, 1.7% more than in 2015. The average milk production per cow rose by 1.4%.The challenge, therefore, was that production was responding with a lag to the favourable economics of the earlier period, while the international market had changed considerably. Several federal reports suggest that global demand for dairy products was relatively weak, particularly in China, while the US dollar remained strong. Several major producing countries had also redirected European dairy products toward markets where US exporters competed due to Russia’s ban on most dairy imports. In addition to that, the European Union ended its milk supply quotas in April 2015, after which EU milk production increased and added to global supplies.When the surplus reached the processing systemWhile the dairy products are traded globally, the effects eventually appeared inside the US supply chain. The government agency reported that exports of some major dairy products weakened between 2014 and 2015, while imports increased. Cheese exports fell by 114 million pounds, or 14%, and dry-whey exports declined by 106 million pounds, or 22%. At the same time, imports of cheese and butter increased, leaving milk and dairy products competing for domestic processing, storage and sales channels.On the other hand, for farmers and milk handlers, converting surplus raw milk into another dairy product was not always an immediate solution. Contemporary reporting noted that some producers could find themselves better off disposing of milk than moving it to a processor when the economics of transportation and processing stopped working. Therefore, the industry started exploring different ways to absorb milk through existing consumer markets. Dairy Management Inc. worked with food companies and restaurant chains to increase the amount of dairy ingredients used in products. Although these measures could increase demand, they were incremental responses to a much bigger imbalance in production and inventories.Why lower farm prices did not mean equally cheap milk in the marketThe collapse in farm prices was substantial, but consumers did not experience the same percentage decline at stores. USDA reported that prices received by dairy farmers fell about 40% between September 2014 and April 2016. Over approximately the same period, the retail price of whole milk fell 16%, from $3.77 per gallon in October 2014 to $3.16 in April 2016.By the end of 2016, the industry’s financial picture remained difficult despite the record production. The annual average all-milk price fell to $16.24 per hundredweight from $17.12 in 2015. While prices staged a modest late-season rally to reach an average of $17.67 per hundredweight in the fourth quarter, the annual figure still heavily reflected the impact of the earlier collapse. The government agency attributed the relatively low 2016 prices to the combination of abundant global supplies, relatively slow demand growth in some markets, continued Russian trade restrictions and stronger European competition, along with the strong US dollar.Catch the latest World News and Live updates. Download the TOI app.