SALES OF DAIRV PRODUCTS IN WISCONSIN AND T E U.S.

A Report to th~ Dir~ctors of tne Wlscans i n Mil~ Marketlng Board

by

l~n d rE'w Nova kovic VSl ti ng Associa t e Professor

De partment of Aqr ic I tur al Ec on mi c5 ,enter f or Dairy Research University Q- Wlsc Dns~~

Januar y 15, !987

This repo r t presents prelim ina r y e _t lmates of productI on and sales of dairy produc 5 produced i n Wisc ons In a nd the U_ 5. i n 1986, wit h c omparisons 0

1985 and e arllel- year. The na tion a l out l ook f or da i r y mari·ets nT'ld 'jairy POllCY in 1987 i s a lso presen ted. The fi na l sectio~ brief l y reviews dctiv't'es and plans rE!lati vE' to a \,Lscons in M l k MCir l'Et InfarmattOl-1 System.

Wiscons i n OairY Productiun and Sales i n 1986

Ustng USDA estlmates for J anuary ~hr ough Noyember~ pr eliminary es t imates can be made of the 1906 product ion of farm milk , American cheeses, all ha rd chl?E!ses, 1 t a 1 ian and other no n-Amer i c an che eses) and bu t t e r , ihe Cammr,d j ty Credi t Corporation also repa ts purchases of da ~ ry products under thE I rire support program includ rg th sta te in which ~ h e prod cts were l ~cated when the s a I e 1-0 the ecc ~~ as iliad e- . Th is serves as a \ e a r es ti. ma e f the arno l an t of Wisconsn made da i r y pro ucts s old to the ecc. These data ~ n be comblned wi th estimates of commercial dCiu'" y product inventories to calculate the c.ommer cial ma ' ~ t i ngs a f Wisc onSin dai ry products, a m asur e ot the am un f dairy pro­ducts made in Wisconsln Wh ICh were consumed 1n commer c lal mar kets ,

Commerc i al disappear ance of Wisconsin da iry produ t ~ i~ estimated in lable 1. Farm ma rke t ngs of mil~ i n Wi s cons in ~re tentatively e~ t lmatej Lo ha~e increased 1. 7~ in 1986. C ommer ~ial s t oc ks are pr~j@cted to ha\E' decreased \n 1986. S~ Ies cf dai r y products t o the Com modi ty Credit Corpo r ati~n ( the pllrcl)as i ng arm of t he U.S . Depa r tment of Agr\c! .ture) under t r.e prire :.ullport program we r e cut in half, on a milk equivalent basis . he lnC(EdSe in fa r m ma r ketirgs and decreasen CCC purc ~ ses and stoc ks add up to a 6.7X Increase in the comme r c ial ma r ke tin 5 of dairy products made in Wisconsin . These da a are prelim i nary e~timates , and even under thE best cir c umstances they do not pr ovide a camp e e and deta il ed tracking of t e us es made of dal r y produ~Ls

p -oduc:ed i.n ~JiscQnsi.n plar,t s. Nev e rthele'55 t hey a)-e oUr bf'st Estimate u f commercial sales , glvel the avai lable data. A~ 51.1ch t he y lnd i cate '1eq· geod re~ul~s for Wisconsin 's d i r y indust r y i n 1986 .

The second half of Table 1 sho ws imiloT data fo r t he r e t of the UnIted Sta'es. (TheSE data were =alculated by sub "ractlng Wisconsin tota ls fram u.~.

totals.) Farm mari'etings o f milk 1n the t he. 49 state- were up l.OY. In 1986 . ( 0 Imercial stocks are proJE ted t o ha ve de c l i ned. Da ', y p r oduc t sa LES tache

Table l . Supply and Ulilizat.on of All Mi k Produc t s i r W !s~onsin 3nd the Rest ~f the United States, 1985 and 1986.

19 5 1986 'I; hanqe

(rni 11 i on pO 'Jnds )

l~i scansi n

Farm Mil k MarketIngs 24,620 25,0'+7 + 1. 7

Addltions 0 Cammerc i a St ocks 1 16 - 300

CCC Purchases '7 08 - 49.7

Commercial Mar~eting ~ 2 3,0'16 24,639 + 6.7

u.~. exc l udinq WlsconSln

Farm Mi l k 1arketings 115,3 17 6,51 1 + 1 . (

AddItions to Commercial Stocks - 30n - 400

CCC Purchases 10, 5 17 7 863 - 25.2

Commerc~al Marketings 105 ,100 108 2y8 + '~. 0

Table 2. Trends in CommerCIal Use of Al l Dair y Pr oduc ts from 19 3 .

Wisconsin Com~ercial ''1ad:etings, Al ll'1 i H:

U.S. Commerc1al Dls3ppearance, All Mlil

~ Change 1985 over 1963

20.S

7 .0

% SMal e 1986 o ;er 1983

28.6

H). J

2

CCC declined about one-fourth, half the de r~a_E reported for Wisc ons in based sales. As a result, commerclal marlet i ngs are est i mated to have i nrreased 3.)'1., less tl-;an nalf the rat e ft') , L.Jis on51 . •

T~ble 2 demonstrates t he trend in CDmmer ial USE af ml!~ from 1983 The d.;.ia fGr Wiscons i n ar e cdlculated by the autl ",or from USDA da t a: using tre same procedure as In T3ble t. The commer ci a l disappea r ance fig ure for the U.S. is taken directly froM USUA r eports and i s calcu l ated in a similar fashion wi th the primary difference bel ng t hat the U. S . flg ur e inc udes t he commercial use of Imports. The estimat es Tor 1986 tOe t he author ' s prel.uni nary pl-ojection',; cased on avallable month l y USDA da a f or 1986. Ba sed on t hese data , c ommerci a l us~ of milk to Wl scons i n lnc r eased 20 . 5Y. frbm 1983 to 1985; camm .cia disdP ­pearance 1n the U.S. l ncr eased 7 .0% ov~ r Lh e s ame period. Prel i minary es t i ­mates for 1986 s how a ro nti nudtion of these trends. Wi s consin's commerc ial marketings in 1986 a r e estimated to be l i p 28. 61. over 1983. Na ti.ona l c ommercial disappea r ance i - e s timated t q have i ncreas ed to . IX over t h is pe r iod .

These lnc r eases occurre d wi th a comb ina ion of sma l l e r increases I n total production and la rge decreaSES i n s - l es of c heese , but ter, and nonf a t drv mi under th e price s uppar " program . De~ reaced s ales to <he ecc have be en especi­ally significant in Wi s consin. Addition31 data on s ~ le5 of bu l k dairy products tQ the cec und er t he price support pr ogram a r e show in Tab l e 3 . As a result of progr ams to put a ~- e i n an pY-oduc tion, i .e . , t he Mi l k Di version Program ill 1984 and the Dairy Ter mination Program i~ 1986, and the i nc r ~ase in commercia l sales, sales to the CCC have genera l ly een ec l i n i ng aft e r 1983. Th ese data demonstrate that sales fr om Wi scons i n l ocati ns have decre3sed at a faster rate than elsewhere i n the /.5, Wisconsln 's shar e of U.S . sales t o the CCC h .5 declined substant ial ly far a ll three pr ice s upp ort produc ts, w " th especi al_y good performanc e i p the ca s es of bu tte and n onf at dry l11 11k . On a mil k equiva­lent ( fats) bas i s, Wisconsin ' s share of CCC sales has decl i ned steadi l y f rom 1983. At 8.3X in 1986, it is almos t one third a f what it Was in 1981 .

Na "ional Sicuatiar and 0 t l aok for 1987

Milk production reached a neW r eco r d i n 1986 bu t so did the commerc i a l disappear anc e or use of daIry pr duc t s . Sa l e s of chee s e , butter and nonfat dry milk to the government are down f r om 1985 . Espec i ally tigh t suppl y and demand condltio ns t h l S fall have pushed milk pri ces hI gh er than e pect e d , but the price of milk in the U. _ . in 1986 averaged only a l i t t l e higher th n it was 1n L979 when milk production a,d gover nme nt pur c hases and e~pend itures started to tak~ off. Oairy Industry a nal ysts a e d'vided 0 ho w much production and consumption wi. ll c lla g2 in 19117, fJut it 1001's l"ke ever yone e)IJEcls net remov­als under the price support progr am to be lower. F-rm pr i ces s ho u ld be s i milar tD 1986 levels . Es timates of s uppl y i li za tio , and pr ice are g i ven in Table 4 and are discu s s ed In greater detail below.

Production l r ends "n 1986

A new mi l k production r e c ord 01 about onE percent ove r the previous up about tV'lO perCEnt.. I~hi le average Th is is mare l ire the pattern th~t

boom 1n the 19805,

ever 145 bi lon pounds was set In IQ86, ecard 1985 l evel. Product i on per cow Was cow numbers were down abo~t one perrent . e~isted before milk production began its

3

Table 3. Summar y of Bulk CCC Purchase~ from Wi sconsin and the Rest 0 " the UnIted Sta~es, 198~ to 1986.

Chee~e :

Wisconsi n U.S. exc . Wis . Wis. share f U. S.

Wiscon'Oin U.S. exc. Jis. Wis. share of U.S.

Nonfat Dry Mi lk:

wiscons .ln U.S. ex c . Wis. Wis. snare of U.S.

1983

2bO~943

53 , 100 32.M'.

66,572 340,93(1

16.3y'

89,232 9 1+6,979

8.6%

Milk Eq u valent (fats basi s) :

Wl sconsin U.S. ext:.. Wis. Wis. share of U.S .

'+ ,044, (+96 12, 756 325

24 .1 ~

1984 1985 1986

rhousand pounds -"--- ----- - --- - ---

61 756 357 3?6

l '+. n

19,009 l"-t I. ,774

11 , BY,

43, 375 610, 562

6.6'l.

1 ,027.585 6, 633 893

13.4·/'

9 7 792 493.820

16.SY.

1 ; ,982 258,339

7 " 2'l.

80,81 7 818,670

9.01.

1 ,408 1 275 10, 5 t , 488

11 • BY.

5::l~791

3 14 , 883 14 .b i".

7,930 218,165

3.S'l.

54, 396 1, 505, 16

3.5'l.

7(.18,400 7,862 532

8.3~

In t he MIdwest. milk produc ti on c lo~e l y para l leled na t ional patterns al ­though ther e wer e var i ati ons with ln the regi on. Wisconsin close l y matched the national a verage" in neighboring Minnesota produc t i on decre ased in 1986. I n the NOl- theast, milk prodliction I S "", light ly above nali na l leve.ls. Cnw I'";umber-s declined less i n the Dr heast th an the U .. average, par ticul ar ly i n New Yor~

as compared to Pennsylva~l~ where increases in pr od ucti on per ~ow wer e a grea t er factor. "he Far West agai , leads t he c untry In pr oduc tion growth, with California exp anding at about tw i ce t he national average . Washington on the other hand c ame i n mor near t he national av erage) primar il y d UE t o de­clInes in cow numbers in th e sta te th a t still l e ads the na ti on in produc t i on per CO"". The South al so s !lovJed I-igher gr owth r a tes, a l though this Olay 5ay more abou t how s l owly these s t ates bounced bac k fr om the Diver si on Program duri ng 1985 t han it does about high mi l k product i on was in 1986 . Hi gher cow number s , particularly i n Florida, have been a facto r in mi l k pr oduction pa tterns i n this re.g ion.

Tabl~~. U,S, Supp ly of Mil~ and Utilization of Dairy Produ ts.

1983 1984 1985 19b6 1987

- ------- - - - - --- bi 11 ion p8unds - ------- --- -- -

Pruduct-on 139." t3 .4 l1t3.7 145 .2 143.0

Far-ITI Use 2.'-1 2. 9 2. 5 2 . 3 2.3

Markehnqs 1:17.3 132. 5 142.9

Begjnnlng Co~mercia l 5to t kc I.j .6 5 .2 4.9 4. 6 4 . 5

Imports 2 .6 2.. 7 2.a 2.8 2.8

TOTAL SUPPLY 14L,.5 140.5 148. 9 150.3 t48.0

Commercial DisappearancE 122 .5 126. 9 1:31 .1 134 . 9 l:Ja.()

Ending Commercia l Stacks 5 . 4. 9 Lt.6 It.S 4.5

Net Remova l s 16.8 8 .6 13. 2 5.5

TOT AL UTI LI ZA TI ON 1ltO.5 148.9 150.3

do l lars per hundredwel ht ------

rarm PrIce , Al l Mi lk $1 3 .58 $1 3.46 $ 2. 7:5 $12.lI5 12.4 5

Asses s ment $ . 48 $ .50 $ .125 $ .36 .2 1

Source: 1983 to 1985 - Dairy Ou tlook and Situation. Ec onomjc Re - earch Service, U.S. Department of Agrl ~ult ur e; 1986 - author ' s estimates fro m avai lab l e USDA data' 1987 - auth or's projections.

Does higher production i n 1986 mean the Dairy Ter~inatiQn Program, or buyout isn ' t wDr~ing . Not rea l l ; . A year ago! USDA f or ecas t mil k productio n to hi t 148 b i l l ion poun S In 1986 ~ if t h e s upport pr ice WbS simply he ld at S11.60 and nothing else was d ne . The buyout may no t h av~ reduced mi lk produc­tion relatlve to 1985, but i t certai nly r esulted In l ower pr oduction. and a smaller surplus, thai would have occurred ot herwise.

if the ma thl y trend per si sts, mil k production in 1987 \<'li ll be less than in 1986. Some forec asters argue t ha t sLab e mi lk pr i ces and lower prices for feed and ather Input s wi l l continue t o favo ;nc reasing mi l k prod etian on non-buyout fa r ms. I'm i lc l i ned to think that production wil l contInue to taper off until the buyou t l S fully imp l emented this summer. Because pr oduc t ion i s lowest -n the fa l _ a nyway~ any expans i Dns fr om more r ows on fa r ms and more arms shouldn ' t be enough to of f s e t t he buyou t reduc tio ns In 1987 . Whether

expansions by nonparti c ipants wi l l lead to greater mi l k productio n in 1988 depends on a host of o ther fa c t ors inc ud i ng what happens to t he pr ice f mil l on Jdouary 1, 198B .

fhe prices o f a ll gr-ades of milk ~ ;. 1986 avera-ged about 3(1 ce nts bel ow the natlonal average f o r- 1985. Even ai-ow i ng fo r t he 25 cent suppor t price cut on January 1 , tig ht.er mario-et condi. t i on" next yea r -5h auld keep market prices for farm milk c lose t o 1986 l evels. Wi th f ar m assessments a ver ag ing 15 cents lower, effEcti vE f a m prices co Id be h igher 1 n 1987 .

Commercial Di s appe a anc e

ContInu i ng th e t r end begun In 1984 c ommer c i~ l disap pe aranc e or USE at­tained a new record level of a out 135 bi l l ion pounds, a 2 .9% increase ~ "/er

1985. T e 12 bi l lion po und gai , fr om 1";>83 i s f a r greater t ha n any prEvious thn?e year incrpase . Th e ques ti on (,agging at a i l f or2castel-::; is "how long can this keep up." Commercia l us e i s expected to sh ow cont i nued growt h is 1987, but .he rate of growt seems to be s l owi ng . F om J u l y 1985 to J une 1986 yea r

o year comparisons af commerc i al use grew at th e r ate of 1.6 bl i lion pounds per quarter. I the last half of 1986, gr owt h in c ommerci a l USE S Dwed to 0. " billion pounds per quar ter . At t hI S l ower r ate l q87 comme rc i dl di s appearance would Increase less than two per cent. By histo rical t and_rds, t h is would sti l l be a healt hy gain bu t r ecent l y we' ve come to expec t mor E. I' m forecast ­ing a gain of a i t t " Ie aver t wo per cent l arge l y becaus e I thi.k d i ry products Wil l con t inue to be a good buy, espec i al l y fo r l a rqe foodservi e and other "industria l" user s . Continui ng impr ovement :; in t. he qu lity of pr o1O ti onal e orts wil l he lp ta o, even i f th e do llar s av ilab l e decre ase I'l ith produ.c t ion.

In 1986, dairy pr oduct pr i':e l ncrease a t whol esale -3nd rE::tai l levelc: con-­tlnued to show smaller gains t han prices I n g~ne r al a r even compared tl othe, foods. Adjusted fa T infl at -on, datry product pr iC ES ar e dec l in i ng, and far some oroducts or In so me ar eas of t he count r y ac tu al p r i c ~s ha ve dec lined . FOT Example, at the wholesa l e l eve l t he pr i ce Q cheese held close to 1985 level~

and t he 1 dex of pr i ces fra Il dairy od uc ts dropped f or the s ecnnd year in a row . At the re.ai l l eve l in 1986 , fl u i d milk pri CES hel d ve r y c l o_e t o 1985 l eve 5 ~hile chee s e pr i c es ar e estimated t o be s omewhat l ower and butter p -ces were sliqh t l y ~igher . Th 1986 index of r e ta 1 price s for a ll da i ry pr oducts loo~s to be essenti all y unchanged from 1985.

Government Pu rc hases and Expen itures

At hough everyone hoped fo r l ower net removals (ho muc h USDA buys l eSE wha t they sell back a t f ull pr i ce ) , the 10 .9 bI l l io n pounds of mil~ equiv lent net removals of chee se bljtter a"ld nonf at dry mLlk was the second l owest l eVEl in si " years. Based on my s upply and U SE' r r ojEctions, ne t , emovals \~ou l d be

half that in 1987 . Obvious l y t h i s f oreca s t w n ' t be pe r f ec . It is unlikely

6

tha , net removals would go much 1 we r t han this, and they cou l d drop only t o 7 billion pounds or 5 If commercia l d isappearance drops 0 f as some fear i t wi l l or if nonpa r t ic ip ants in th e buyou t e xpand t a greater r ate .

Net governmen t expend i tur es on dairy pr i c e suppar t activ i t i es , i ncluding assessment r e"lenue and buyout paymen ts, totall ed $2. 3 b ill ion in f iscal year 1986 . Buy~u t payments wi ll be a fa i r ly sma l l fact or in the current fisca l year, as they are s tretched aut over the ne xt fi ve ye ars. Assessment r eve we will be 5ubstan i al , and purchase costs c uld be as much a s 50% l ower. Hence governmen t e xpendit ur es in f i s ca l year 1987 c ou l d be t he lw west i ri se 'en years.

Policy Changes i n 1987

On Oc t obe r l , 1987 .her e is n t her 25 ce~t dr op in t he s up port price and the assessment e nd s , bu t t he net effect on fa r mer s is zer o. The "storm c louds " that exist under curren t leg i sl at i o n are in t he f or m of ano ther 50 cent cut in the support pr ic e on J anuar y l ~ 1988 and th e pos sibi li ty of 50 me ki nd o f price cu t or a s sessme nt due to t he budget bal ancing r eq u iremen ts of the so-calle i

Gr amm- Rudman legislation . The lalter ~5 a wild c ard and hard to pr edict , but i t could be very ' mportant . T ~ e 1988 pr i ce cu t wi l l be a r ea l i ty if it l ooks l i ke milk production i s incre as i ng f aster t ha n commer ci5! use at the e nd of lq87. Remember, t hE 5 b l l liG n pound net r Emo val tri gger on the January price cut refers to what USD~ pr OjEc ts wou l d oc cur i n 1988 without 3 pri ce cut , no~

what ac tua ll y happens in 1987.

Ther e has bee n much t a l k abo u t milk quotas, t wo-t ier p r l c i ng, and other variations on the s uppl y co ntr o l t he me. Likewi se the r e wi ll c o , tinue to be voices f or further c ut s i n t he sup port price . An inter med iate posi tion wi l l be to use another bu yout pr og r a m r ather th an cu t pr ices i n 1988 Or I ter years. This could be done under cur r en t l aw a t the d i s cr e t i on o f t he Secre ary a f Agriculture bu t some ar e now suggest i ng that the l dw be c hanged to r ep l ace t e triggered price cuts ~ith trigge r ed b you s .

Serious problems with hi gh 9 vernme t e xpenditur es under other gover~m9nt

farm programs me an t hat agr i cu l tura l po li cy wl l i be opened up in 1987. Propo­nents of cnange wil l see to It that dairy is par t of that agenda; whether r not any changes Will occur remains t o be seen. My guess i s that i f product i on 1 S decreasing t hrough 1987 and net r emo a l s lo o ~ like t hey will be near the 5 billion pound mark, Congr ess wi ll app ly I'l e "don 't f ix it if it ain 't bl..l s teej" ru E.

A Wisconsin Mi l k M r ket Info rmatio n Svstem

The marke t data sh aw n i n this repor~ a r e il lustrative of the da t a tha t have been collected as part of the flrst phase of the devel opment ~f a Wiscon­sin Milk Market Inf ormation System -- Wi sMM 1S . When full y imp l emen"ed, this info'r ma ior. system wi l l pro v 1de ,-eady ac cess to e xist i ng US A da ' a series whi c:h descr i be d ai~y sector a c t i v i ty and perfo rma nce for Wisconsi n , oth e r sta t es, and the U.S. in total. The first phase of ~he dEvelopme nt process has invo lved war~ing with t ,s r edd Iy avai l ab l e over ment data to f i ne t hos e data et s which a e most relevan t t o understanding ",hat is happenIng to Wisc onSi n 's d a Iry product indu s tr y and lts performance. Th15 s ummary r epo r t is taken from ata

aS5Embled as par t of the first phase of the WsMMIS project . The next staqe of this project ~ill inv o lve the development o f compute r sy s tems t handl e these data and make them morE' ac cessible to Wisconsi n U5ers.

The data s ynt esized from government re or ts ar e valuable because they ~ r e

based on sound statisti cal proc edures, cons i stent ly co l lected and reported 0 er t ' me~ and r eadily ava i lable. The se dat a pr ovide a good overview of the ge neral status and pe formance o f t he Wisconsin dairy secto r ove r a period of time. Although the data are usefu l in help lng s understand where we a re , t e y do not tell us how we got whe re we ar e. Mo r e spec i fic dat a are necessalY if we wish to s or t out the impDrtant causa l fact ors and thelf rela t i ve s i gn i ficancE . For thi s reasen . a third phase of the Wi sMMIS projec wi l l f ocu s on he avai l abil­ity and ut i lity of o t her da t a sets pr ov i ded by commercial f ir ms and the des i ra­bility of geer ating new i nformatlo that would be us efu l n the development of new WMMB pr ogr ams, 1 particular, ami in imprc! lng our under standing of the whole complex of fa c tor s t hat a ffec t Wisc onsi n ' s da i r y markets.

n