Economist provides outlook for 2021 dairy prices and milk production
According to University of Wisconsin-Madison Dairy Economist Dr. Bob Cropp, milk production during the end of 2020 continued to run well above year-ago levels. In fact, Cropp notes December milk production was up 3.1 percent from 2019, marking the second consecutive month this number has been above three percent.
“Milk cow numbers have been increasing since July, with another 12,000 in December, marking a total increase of 100,000 head,” he says. “December cow numbers were 1.1 percent higher than a year ago, and of 24 selected states, only eight had fewer milk cows than a year ago. Milk per cow is up two percent, which is well above the normal trend.”
Despite this, with the COVID-19 pandemic still affecting production rates, Cropp notes 2021 milk prices are hard to predict.
High milk production affects prices
According to Cropp, these high levels of milk production have been and will continue to affect milk prices.
“Because of the growth in milk production, improved domestic sales of milk and dairy products and favorable dairy exports will be needed to maintain and increase milk prices,” he explains.
Cropp continues, “With the current amount of milk being produced, we could see Class III prices near $16 during the first half of the year and near $17 during the second half.”
“Additionally, we may see Class IV prices around $14 to $15 during the first half of the year and in the $16 range during the second half,” he adds.
Cropp notes Class III dairy encompasses milk used for most types of cheese and whey, while Class IV dairy consists of butter, butter-based spreads and dry products such as whole milk powder and nonfat dry milk.
Although Cropp is confident in his predictions, he reminds everyone there are a lot of factors which could change this forecast.
“Until COVID-19 is more under control, dairy product sales will be dampened. Hopefully with distribution of the vaccine, life will become more normal,” Cropp says. “With restaurants fully opened and schools returning back to in-person instruction, sales could improve by the second half of the year.”
2021 dairy prices
In the U.S. Department of Agriculture’s (USDA) National Dairy Products Sales Report, most wholesale dairy product prices rose during the week ending Jan. 9. The price of 40-pound blocks of cheddar cheese was the exception, falling 8.5 cents to $1.67 per pound.
According to the USDA report, the price for 500-pound barrels of cheddar cheese rose 4.9 cents to $1.53 per pound, and per-pound prices for butter, nonfat dry milk and dry whey increased 5.1 cents, 2.3 cents and 3.2 cents, respectively.
During this same time frame, Chicago Mercantile Exchange (CME) spot prices for 40-pound blocks and 500-pound barrels of cheddar cheese were significantly higher than most recent prices, averaging $1.78 and $1.60 per pound, respectively. CME spot prices for nonfat dry milk and dry whey were also higher, averaging $1.18 and 49 cents per pound, respectively.
Additionally, the CME weekly average spot price for butter was lower, averaging $1.41 per pound.
Risk management
Since many dairy producers are still suffering from market disruptions caused by the COVID-19 pandemic, Cropp reminds them of several risk management opportunities available today.
Congress recently passed the Consolidated Appropriations Act (CAA) of 2021, which was signed into law by former President Donald Trump on Dec. 27. According to USDA, CAA includes $900 billion for COVID-19 relief, with nearly $13 billion specifically set aside for the agriculture sector.
CAA also includes a supplemental Dairy Margin Coverage payment specifically designed for dairy producers based on the difference between each operation’s actual milk production in 2019 and the operation’s historical production, previously established through the program.
According to USDA, nearly three-quarters of all U.S. dairy producers with an established milk production history are enrolled in the Dairy Margin Coverage Program, totaling 18,500 producers, up significantly from 2020’s 13,532 producers.
Additionally, about 3,000 producers purchased protection under the Dairy Revenue Protection Program, which covers 30 percent of the milk supply and has provided more than $400 million in payments to operations since 2019.
USDA further notes around 200 dairy producers purchased coverage through the Livestock Gross Margin for Dairy Cattle Program, which provides protection when feed costs rise or milk prices drop.
Hannah Bugas is the editor of the Wyoming Livestock Roundup. Send comments on this article to roundup@wylr.net.
