The coronavirus has taken a big bite out of all the markets. And dairy certainly is not immune to the spreading impact of the COVID-19 virus.

Just how much have dairy markets been impacted?

The short answer — a 5.3% reduction has been forecasted.

The upcoming March 25, 2020, Milk Check Outlook column provides deep insight to this matter. However, when reading the article, you will not gain an appreciation for the full impact. That’s because the version of the Milk Check column we received on February 10 from author Bill Brooks will not see the printing press or electronic distribution. That analysis was updated on March 10 for publication in the March 25, 2020, issue of Hoard's Dairyman.

The February 10 initial analysis: Carrying the title “Look for 2020 to be the best year since 2014,” the article by Brooks had an optimistic view of the market.

“USDA’s February edition of the World Agricultural Supply and Demand Estimates (WADSE) report had mostly good news for U.S. dairy producers. On the input side, feed costs are expected to be only slightly higher in 2020 than they were in 2019. If realized, feed costs would add on to 2019’s expenses due to higher corn and soybean prices offset slightly due to a lower alfalfa price,” wrote Brooks, who is an independent dairy economist.

On the other side of the equation, the U.S. All-Milk price midpoint is projected to be $18.85 per hundredweight (cwt.), up 25 cents per cwt. from 2019’s price level. If the 2020 All-Milk price is realized, it would be the fifth highest in history.

The March 10 initial analysis: The revamped article, “Coronavirus is shaking 2020 price projections,” was the new title assigned the day it headed to the printer.

“USDA’s March edition of the World Agricultural Supply and Demand Estimates (WADSE) report had mixed news for U.S. dairy producers. On the input side, feed costs are expected to be only slightly higher in 2020 than they were in 2019. If realized, feed costs would add on to 2019’s expenses due to higher corn and soybean prices offset slightly due to a lower alfalfa price,” rewrote Brooks, noting very little change on the input side.

On the other end of the equation, the U.S. All-Milk price midpoint is projected to be $18.25 per hundredweight (cwt.), down 60 cents per cwt. from the February 2020 projection. If realized, that All-Milk price would be off 35 cents per cwt. from 2019’s price level.

First take-home message: The coronavirus already caused a 60-cent reduction in the All-Milk price forecast for 2020.

The February 10 USDA analysis: “The improvement in milk price offsets the slight uptick in feed costs to push income for dairy producers to $10.44, the highest level since the record year of 2014 when income over feed costs averaged $14.45,” Brooks originally wrote.

“Using USDA’s marketing year midpoint projections for corn and soybeans, plus my estimate for alfalfa hay, the 2020 feed costs are projected to be $8.41 per cwt.

“When USDA’s feed costs are combined with their calendar year All-Milk price midpoint price projection of $18.85, income over feed comes in at $10.44 per cwt. That is 16 cents above 2019’s estimated level of $10.28 and $1.02 higher than the 2015 to 2019 five-year average of $9.42 per hundredweight.”

The March 10 USDA analysis: In the updated article, Brooks wrote, “When factoring in the milk price forecast with the slight uptick in feed costs, income over feed costs for dairy producers slides to $9.91 . . . compared to $10.28 in 2019.

“Using USDA’s marketing year midpoint projections for corn and soybeans, plus my estimate for alfalfa hay, the 2020 feed costs are projected to be $8.34 per cwt.

“When USDA’s feed costs are combined with their calendar year All-Milk price midpoint price projection of $18.25, income over feed comes in at $9.91 per cwt. That is 37 cents below 2019’s estimated level of $10.28 and 49 cents higher than the 2015 to 2019 five-year average of $9.42 per hundredweight.”

Second take-home message: These are the changes between the February versus March USDA data:

• Income over feed costs forecasts fell 53 cents (February 10 was $10.44 and March 10 was $9.91).

• Income over feed costs for 2020, when compared to 2019, changed 53 cents (February 10 was a 16-cent gain and March 10 was a 37-cent reduction).

• Income over feed costs, when comparing to the 2015 to 2019 five-year average, changed $1.51 (February 10 was a $1.02 gain while March 10 was just a 49-cent gain).

The February 10 CME analysis: Here’s what the CME futures indicated, “Looking at another source for prices, the CME futures market, the result is similar. Using the February 10 futures, settling prices for corn and soybeans, plus my rough estimate for alfalfa hay, the 2020 feed costs are projected to be $8.48 per cwt,” wrote Brooks. “When USDA’s $1.90 per cwt. difference between their 2020 All-Milk and Class III milk price estimates are added to the February 10 CME Class III milk price settling futures of $17.54, the resulting All-Milk price projection is $19.44.

“The resulting CME futures price, based on income over feed costs, comes in at $10.96 per cwt. That would be 68 cents per cwt. above 2019’s estimated level and $1.54 higher than the 2015 to 2019 five-year average of $9.42.”

The March 10 CME analysis: The updated article now reads, “Looking at another source for prices, the CME futures market, the result is similar. Using the March 10 futures, settling prices for corn and soybeans, plus my rough estimate for alfalfa hay, the 2020 feed costs are projected to be $8.35 per cwt,” wrote Brooks. “When USDA’s $1.60 per cwt. difference between their 2020 All-Milk and Class III milk price estimates are added to the March 10 CME Class III milk price settling futures of $16.62, the resulting All-Milk price projection is $18.22.

“The resulting CME futures price, based on income over feed costs, comes in at $9.87 per cwt. That would be 41 cents per cwt. below 2019’s estimated level, but 45 cents higher than the 2015 to 2019 five-year average of $9.42.”

Third take-home message: These are the changes when looking at the CME:

• Feed costs shifted 13 cents lower (February 10 was $8.48 and March 10 was $8.35).

• CME Class III futures fell 92 cents (February 10 was $17.54 and March 10 was $16.62).

• All-Milk price projections slid $1.22 (February 10 was $19.44 and March 10 was $18.22).

• Income over feed costs forecasts dropped $1.09 (February 10 was $10.96 and March 10 was $9.87).

• Income over feed costs for 2020, when compared to 2019, changed $1.09 (February 10 was a 68-cent gain while March 10 was a 41-cent reduction).

• Income over feed costs, when comparing to the 2015 to 2019 five-year average, changed $1.99 (February 10 was a $1.54 gain while March 10 was just a 45-cent gain).

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(c) Hoard's Dairyman Intel 2020
March 16, 2020
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