Based on rough calculations by the University of Wisconsin’s Mark Stephenson, it’s expected that the dairy industry will lose at least $10 billion because of the COVID-19 pandemic, and that doesn’t account for milk that’s not produced due to shipping restrictions from processors.

Beginning in January when the first news of coronavirus came out of China until the end of April, May Class III futures prices dropped from more than $17 per hundredweight (cwt.) to just over $11 per cwt. Class IV futures saw even steeper declines, falling from just below $18 per cwt. to right at $10 per cwt.

The graph below shows how great the impact of the pandemic is expected to be. The blue line shows Class III expected future values on January 24, and the orange line shows the actual or expected Class III values at the end of April.

Presenting during the Wednesday, May 6 DairyLivestream, Stephenson described his process for calculating the $10 billion loss. “My approach to doing this was to take a look at what futures prices were thinking at about January 24 before we started to have known cases here in the U.S. and before this was hitting any of our major news cycles,” he said. “When you take this amount of price loss during this 2020 year and you multiply it by even last year’s milk production, let alone the increases that we’ve seen already this year, we come up with a number of about $10 billion.

“This doesn’t really try to capture all of those masked sales we’ve had at distressed milk prices, which don’t even show up yet here,” he continued. “The other thing I will say is this does not account for milk that we are simply not going to produce and get to market. Those are additional losses that you would have to factor into that.”

Looking to the rest of the year, the May 6 panel of Stephenson, Cornell’s Chris Wolf, Maryland and Virginia Milk Producers Cooperative Association CEO Jay Bryant, and United Dairymen of Arizona CEO Keith Murfield predicted milk prices to recover but not rally.

“I do expect that Class III is going to be above Class IV for the year, but there’s going to be some product out here that’s keeping a little bit of a lid on recovery as it comes out,” Stephenson concluded.

Read more on the inventory lid in “Dairy product inventories climbed 250%.”

Watch the archived version of “Co-ops, customers, and COVID-19” by clicking on the link.

An ongoing series
If you haven’t joined a DairyLivestream broadcast yet, register here. The next livestream is scheduled for Wednesday, May 13, 2020. As always, a panel of experts will discuss over 30 minutes of audience questions.

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(c) Hoard's Dairyman Intel 2020
May 7, 2020
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