LIKE their Australian counterparts, United States dairyfarmers are also reeling from low farm gate milk prices, with banks calling in loans and feed companies refusing to deliver feed on some farms in California, according to Kraft dairy procurement director Mike McCully.
In the past couple of years the United States has significantly ramped up its production to capitalise on export opportunities, but now with the crash in dairy demand has found itself with too many dairy cows.
"The US has 3-5 per cent too much supply within its borders," Mr McCully said.
"Domestic demand is off with the recession hitting pizza demand hard, so pizza cheese is off by several million pounds and they have lost the export market to a large extent,"
Speaking from Chicago during the Dairy Live video conference, Mr McCully said US exports peaked at 10pc of production but had since scaled back to about 6-7pc.
"All of a sudden dairy prices are at their lowest levels in a number of years. Combine this with high input costs and the margin pressure is probably the worst it has ever been," he said.
He said the organisation Cooperatives Working Together which represent 70pc of US dairyfarmers was aiming to bring the supply-demand imbalance under control by culling 102,000 to 103,000 cattle and another culling program was likely in their late summer.
The good news for Australian farmers was that Mr McCully expected no change to the US Farm Bill which was only passed last year, and further government intervention other than the government export incentive program for the Californian and Mid Western dairyfarmers was expected to be minimal.
The mindset of an export market based on export subsidies and blocking imports was also gradually changing among dairy farmers and leaders of dairy cooperatives - with companies such as Kraft advocating the elimination of export subsidies.
Mr McCully predicted Mexico, the US's largest export destination, would continue to be an important dairy outlet because of the zero tariff agreement between the two countries, but he said it was unlikely the US would compete in the Asian and Middle Eastern markets.
"The US aspires to be a big player in the export market but realistically they need to pare back their aspirations a bit and find a few products they can focus on and also focus on several key markets."
He said many US dairyfarmers continued to focus on producing non-fat dried milk, domestic grade butter and yellow cheddar cheese for the government intervention program, but this domestic price-support program was actually sending the wrong market signals for exports.
"The world market does not want non-fat dried milk, it wants skim milk powder and whole milk powder and some sort of fractioned milk protein and the US really doesn't produce it," he said.
Mr McCully believes Australia's main export competitor going forward will be Brazil which has a similar, low-cost, pasture-based grazing system.
He said access to better market information and price transparency through futures or forward contracts would also be important for dairy farmers.
"We have moved from a local or domestic market place to now where the dairy industry is increasingly global in nature and those that are able to compete will be successful in the future," he said.
In 2008 Kraft had a global revenue of $42 billion with their cheese revenue $7.5 billion alone - more than double the farm gate value of Australia's total dairy product.
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