Many dairy producers across the nation are struggling with low milk prices, and that trend isn’t looking to change anytime soon. Cody Heller, CEO/CFO of Central Wisconsin Ag Services, has broken down exactly what is happening on both the supply and demand sides of the dairy industry, and offers some advice for producers to make the most of the economy’s current state.

US milk production has recently seen a reduction, following the price-generated expansion of milk production seen across the industry throughout late 2014 and 2015. Several factors were responsible for the reduction, including farmers leaving the market, reduced expansion goals, and an increased number of cull cows. A downward trend has also begun in the supply of butter and nonfat dry milk. While the butter supply tends to be cyclical due to increased consumption over the holidays, some supply-side relief does appear to be starting, with no apparent signs of contraction for the next 6-8 months.

On the global demand side, export numbers have fallen, primarily from the combination of a strong US Dollar and a slowing Chinese economy, as the Chinese are the largest importers of dairy products. While the Chinese economy is expected to continue to grow this year, the rate of growth is expected to slow considerably from previous trends.

Between the large market supply and low global demand, prices are expected to continue at or below most dairy’s break-even for the next 8-16 months. Based on current market conditions, staying above $16 will be a struggle until early 2017. The fall will bring some relief, however, with a projected $2.00/cwt. price increase from the current prices. The Chinese lifting the ban on multiple-children households late in 2016 will also cause some uptick in demand for infant formula.

The current state of the commodities market will offer some cushion for producers to make up some of these losses, as oil prices and feed prices are both expected to stay low throughout most of 2016. The US economy as a whole is also expected to grow at a higher rate than last year, which may help spur more domestic demand.

These factors require that dairy producers begin to look deeper at their daily practices and see what we can be done on the management end to protect their bottom lines. Producers are encouraged to consult with their veterinarians about any changes in their treatment or vaccination protocols that could help reduce costs on pharmaceutical purchases, and to ask their nutritionist to perform an economic analysis on both commodities and trace mineral pack (VTM).

“A few pennies per cow per day can add up in markets like this,” says Heller.