After riding the rocky waves of 2020, all in the dairy industry are hoping for smoother sailing in the year ahead when it comes to milk prices. But do agricultural economists see calmer waters in our future?

Mark Stephenson, University of Wisconsin-Madison’s director of dairy policy analysis, addressed the current dairy situation and price outlook in the January Hoard’s Dairyman monthly webinar, titled “Pandemic, prices, and PPDs . . . What will 2021 offer?”

Stephenson pointed to a number of forecast factors that are positive. One is the newest round of the USDA Farmers to Families Food Box program. He said dairy will be part of the $1.5 billion spent on food for the program. Initially, this just included the purchase of fluid milk and certain cheeses, but Stephenson said it has been expanded to include a wider variety of cheeses and other dairy products, such as sour cream.

Another positive indicator is strong grocery store sales. While Stephenson said people are getting eager to eat out of home more (or at least order more takeout), “home cooking is still a thing, and we are doing more of it than we did before.”

Although restaurants and schools are still struggling with plans on how to reopen and remain open, Stephenson noted that we are starting to move more dairy product through those channels again. Similarly, 2021 will likely bring more people back to work in offices and some version of “normal,” he said.

And as always, export opportunities will play an important role in U.S. milk prices. Stephenson shared that U.S. milk production is bouncing back from where it was earlier in 2020, but the same can be said for other major dairy regions, including the European Union, Oceania, and Argentina.

“We need worldwide demand to hang tight if we are going to continue to sell a lot of milk in export markets,” he said.

Price predictions for the year
Looking back at 2020, Stephenson pointed to the Class III highs – $24.50 per hundredweight (cwt.) in July – and lows – below $13 per cwt. in May. Right now, his predictions for 2021 are more level, but he admitted that the stability currently being forecast is somewhat of a guess as opposed to him seeing nothing but tranquil waters.

“I think we are going to have some more tightness in the marketplace during periods of time, and I think we will see some time periods when markets are challenged again,” he predicted. He does not anticipate the kind of troughs we experienced in April and May of 2020, though, since the markets would be better equipped to handle another pandemic-induced shutdown, if that became necessary.

Stephenson’s forecast for 2021 includes an average Class III price of $17.35, Class IV price of $16.56, and an All-Milk price of $18.50.

He reminded the audience that 2020 is not really in the rearview mirror yet, as we are in the middle of another spike in COVID-19 cases.

“It (the pandemic) has been providing heavy impacts in the marketplace,” he said. He emphasized that we are in the tailspin of a worldwide recession and that it will take a while to dig out. “The virus has induced many supply chain disruptions, not just dairy,” he said.

Stephenson said that effective vaccines, more testing, and better tracing give him optimism about dairy markets this year. Still, there are concerns about how rapidly the vaccine is going to be administered, and he said it will take time before we achieve herd immunity. So, although the situation is improving, the problems of 2020 didn’t just disappear with the flip of the calendar page.

“Even when we do (achieve herd immunity), the U.S. is going to take a while to dig out from this recession, as is much of the rest of the world,” Stephenson said. “This is not going to be an easy thing for us to climb out of.”

To learn more, watch the full webinar, “Pandemic, prices, and PPDs . . . What will 2021 offer?" This webinar was sponsored by Cargill.

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(c) Hoard's Dairyman Intel 2021
January 14, 2021
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