With economic uncertainty continuing and more discussion of the potential for a recession in the U.S., examining the effects of past recessions on key dairy industry metrics is appropriate. Omitting the very unique COVID-19 induced recession of February to April 2020, the National Bureau of Economic Research identifies three other recessions since 1990.

Calculating the changes in milk, cheese, corn, alfalfa, beef, and oil prices from the first month of the recession to the final month is one simple way to gauge how past recessions have affected dairy industry profitability. The included figure displays the results from the recessions of July 1990 to March 1991, March to November 2001, and December 2007 to June 2009, as well as the average of all three.

In two of these three recessions, as well as for the average of all three, milk and cheese prices took a sharper tumble than corn and alfalfa prices. Milk and cheese price declines also outpaced oil and beef price drops on average.

Of course, no two recessions are the same, and there are always other industry-specific factors occurring at the same time to make it impossible to draw definitive conclusions from a simple analysis. For example, the 2007 to 2009 recession had milk prices declining by 47% and cheese prices declining by 44% over the 19-month period. These drops were some of the biggest and perhaps highlight the important role that the contraction in international markets played during this recession.

Close to the consumer

Although it is impossible to untangle all of the effects that unfold during a recession, those industries that produce products nearer to the final consumer may feel the effects of a recession to a greater extent than those industries that are producing products for intermediate demands. That is, the dairy industry may see a stronger impact than the corn industry since dairy products are produced for retail consumption while the corn industry sells an intermediate product.

Although the last three recessions in this country can provide some information about how the dairy industry has fared during previous downturns, history may not be a good indicator of how a future recession affects the industry. Contingency planning remains critical in these volatile times.

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(c) Hoard's Dairyman Intel 2022
May 16, 2022
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