New trends for ice cream shops predict a profitable future in 2018. Consumers are clamoring for wacky flavors and artisan ice cream, and rising disposable incomes give ice cream shops the wiggle room to use pricier ingredients. Adding to the good fortune—the main ingredient is about to get a little cheaper.
Forecast of Milk Prices in 2018
Milk prices are forecasted to decrease in 2018, adding savings to your business. It’s undesirable for the dairy industry, but as the owner of an ice cream parlor, the benefits can be a higher profit margin or extra cash flow to experiment with.
While US milk production has slowed, the massive-scale of the global supply is keeping prices low. Certain factors that hamper American companies from increasing their prices include:
- Full inventories in the European Union (EU) of dried milk products.
- The expected increase in milk production in the EU.
The EU is a stiff competitor to the US milk market as the world’s largest exporter of dried milk powder. In 2017, the region exported 50% more dried milk powder and products to the global market than the United States.
This means that stagnant times are imminent for the US milk industry. Although US milk production has decreased, raising the prices isn’t an option with the EU’s robust milk production. Forecasts say that throughout 2018, milk’s prices will remain undesirably low for US producers.
How This Affects US Dairy Farmers
Within the first six months of 2018, dairy product prices are expected to decline for two reasons:
- An increase in stocks of certain milk products.
- A reduction in the domestic use of dairy products.
Using Pennsylvania as an example, the forecast for milk prices for the first 10 months of 2018 is $16.86 per cwt. According to the Wisconsin State Farmer, forecasted milk prices will prove challenging to US dairy farms. Profit margins will be low.
The US Farm Income and Debt Levels
The US Department of Agriculture calculates a 3% increase in net profit earnings of all US farms (known as the Net Farm Income), which totaled to $63 billion for the fiscal year of 2017.
The sobering reality is that in over four years, the Net Farm Income (NFI) fell to one-half its earnings. In 2013, the NFI was $129 billion. There are a few reasons why the agricultural economy has suffered so much:
- Between 2013 and 2017, the USDA has figures showing a 20% increase in farm debt. With commodity prices staying the same, there isn’t enough cash flow to reduce debt levels.
There is a new fear that debt levels will rise since the Federal Reserve announced an interest rate increase in December 2017. With higher interest rates on credit and short-term variable rate loans, farming businesses are adversely affected.
- Both the European Union and New Zealand are experiencing stronger milk production years. Long-time competitors of the US dairy export markets, they are expected to continue with an aggressive push to supply the global demand.
- The Midwest sees a decline in milk premiums, and milk prices are expected to range between $16.60 and $18, like in 2015.
US Milk Production
In total, 23 American states contribute to the national milk economy, producing about 16.2 billion pounds of milk. California is responsible for nearly 20% of milk production in the United States, and Wisconsin and Idaho follow in rankings of second and third.
- California produced 40,898 billion pounds of milk (19.6% of total US production).
- Wisconsin produced 29,030 billion pounds (13.91%).
- Idaho produced 14,114 billion pounds (6.76%).
- New York produced 14,100 billion pounds (6.76%).
- Pennsylvania produced 10,805 billion pounds (18%).
- Texas produced 10,295 billion pounds (4.93%).
- Michigan produced 10,253 billion pounds (4.91%).
- Minnesota produced 9,466 billion pounds (4.54%).
- New Mexico produced 7,831 billion pounds (3.75%).
- Washington produced 6,606 billion pounds (3.17%).
For this year’s ice cream production, consider making a local dairy farm the primary supplier for your ice cream shop. This switch would support the local economy. And don’t forget to tell your customers!