The dairy industry is in a much better financial position today than anyone would have thought back in late March when the COVID-19 pandemic was beginning to create unprecedented effects across the country. Cheese prices have provided much of the brighter financial picture we are seeing today, but the government support also has been of nearly of equal importance.
A look at U.S. dairy farm revenue illustrated in the graphic provides some interesting points for discussion. Clearly, most dairy revenue is derived from the marketplace as described by cash receipts. The bottom portion of the stacked bar, cash receipts, is truncated (physically adjusted) to allow a closer look at the annual changes in the revenue categories, but it should not be misinterpreted that government support and cash receipts have similar importance in terms of total revenue.
The graphic clearly shows that without the direct government support provided in 2020 through the Coronavirus Food Assistance Program (CFAP and CFAP2), U.S. dairy revenue would have been lower in 2020 by nearly $1 billion relative to 2019. The $2.6 billion provided through CFAP and CFAP2 will result in total dairy revenue increasing in 2020 relative to 2019 as the decline in cash receipts has ended up being less than many expected back when COVID-19 created the economic shuttering of many parts of the U.S. economy. The Paycheck Protection Program and the Farmers to Families Food Box program provided additional support that should not be overlooked even though these programs are not directly represented in the graphic.
The upcoming year
The critical question to examine is what will unfold in 2021. Many forecasts are projecting lower milk prices in 2021, suggesting a decline in dairy market receipts. If there are no further federal stimulus programs providing direct support to the industry, total revenue could decline by about $3 billion, or 7%.
On top of the projected decline in dairy revenue, feed costs have been on an upswing over the past two months and that could be a further squeeze on dairy producers’ bottom lines in 2021.
Downside risks remain in the marketplace, and dairy producers should remain proactive in determining how much of the downside risk they want to eliminate from their 2021 financial outlook.