“It’s gonna be a tough year”
Milk futures prices plummet as a result of COVID-19 pandemic
The coronavirus (COVID-19) has boosted demand for some dairy products, but sharply cut demand for dairy as a whole, and, with futures prices plummeting on the Chicago Mercantile Exchange, it is uncertain what relief is at hand for dairy farmers in the agricultural provisions of last week’s passed $2 trillion federal relief package.
That’s the word from UWMadison dairy economist Mark Stephenson on Monday.
The economist said demand for some products, such as mozzarella cheese that goes on frozen pizzas, is way up, as is string cheese, with parents seeking to feed children who are now kept home after schools closed because of the COVID-129 pandemic. Beverage milk, too, which has had soft demand in recent years, has been “flying off the shelves.”
On the other hand, he said, demand for American processed cheese, the kind that is used on fast food hamburgers and on nachos, has fallen off a ledge.
“It’s not quite zero, but it’s near that,” he said.
Stephenson said overall dairy demand has dropped and, combined with warehouses filled with cheese, nonfat dried milk and, especially, butter, prices have plummeted. “They’ve dropped like a brick,” he said. “This is going to be brutal. This looks like a freefall.” Chicago Mercantile Exchange per pound prices on Monday for dairy commodities were butter, $1.40; block cheddar, $1.44; and nonfat dry milk, 90 cents. Stephenson said a $2 trillion coronavirus relief package signed into law by President Trump on Friday contains $23.5 billion for agriculture, including $9.5 billion for U.S. Department of Agriculture and $14 billion for the Commodity Credit Corporation (CCC).
He said it’s unclear how USDA will direct the money to be spent.
He said USDA could use its $9.5 billion to better fund the Supplemental Nutrition Assistance Program (SNAP) or, perhaps, to send additional checks to farmers, as was done to offset the impact of tariffs.
The CCC funding will likely be used to purchase dairy products in an attempt to raise prices, but, said Stephenson, if the products purchased just replace sales that would have happened anyway, he is doubtful that prices will rebound.
“If the CCC gives dairy to school lunch programs or elderly care facilities, that might cannibalize sales,” he said. “You don’t add sales, you just change who paid for it.”
Stephenson said prices paid to dairy farmers in the fourth quarter of 2019 were good enough for many operations to cash flow. Some dairy farmers paid off outstanding bills and had begun paying off principal on bank loans.
Looking forward, he said March prices won’t be so terrible, but April prices may reflect the full brunt of the COVID-19 caused demand slump.
Stephenson said another round of low dairy prices will likely hasten the exodus of producers off the farm.
“It’s hard to imagine that it wouldn’t,” he said.
The UW economist said he’s looking at a somewhat grim prospect for the dairy industry over the near term.
“It’s not fair to paint a rosy picture,” he said. “Things are just a mess. It’s gonna be a tough year.”
