Oregon dairy cow

An Oregon dairy cow. Economists see more challenges ahead for the U.S. dairy industry.

The COVID-19 pandemic delivered a roller coaster ride for the dairy industry, with both positive and negative price extremes. While dairy analysts don’t expect that level of volatility in 2021, they do see challenges.

“At the moment, we’re on the precipice of a very precarious situation,” Matt Gould, president and editor of Dairy Market Analyst, said.

The new Glanbia cheese plant in Michigan — with a capacity of 800,000 pounds of cheddar cheese a day — is starting production, he said during the latest “Dairy Livestream” podcast.

“So we have this expansion in cheese production. We also have milk supplies that are very, very heavy throughout the country. In some cases, we have supply-management programs in place,” he said.

Most of the country has plenty of milk, and it’s extremely cheap in the Midwest. It’s also cold in many areas, and people aren’t going out to eat outside. Restaurants are temporarily or permanently shutting, he said.

Market fundamental have weakened extremely over the last 30 days, he said.

“As I look at the first half of next year, there’s a lot of price-negative risk and the kind of risk that we got a taste of in the second quarter (of 2020). It could very much come back and bite us,” he said.

Without government intervention, cheese prices could be the lowest in many years. Butter prices could be hit as well, he said.

With Congress looking to pass another stimulus bill, there could be another round of food boxes under the Trump administration. But people shouldn’t hang their hat on the government lifting the bottom out of the dairy market in 2021, he said.

As for milk supply, U.S. production is up 2.3% year over year. Production in the European Union and Oceania is up more than 1%, said Mark Stephenson, a dairy economist with the University of Wisconsin.

“So we’re all just a little bit on the ‘growthy’ side, and I hope that we kind of keep things together,” he said.

Some of the fundamentals for the U.S. are a bit on the “grumpy side,” he said.

But the U.S. has had amazingly strong exports this year. That’s no surprise for cheese exports when U.S. prices were $1 a pound and well below world prices. But powder exports have been strong as well, he said.

“Our opportunities for selling powder into world markets probably continues,” he said.

Whey protein exports have also been up considerably, almost exclusively due to China rebuilding its swine herd and committing to the Phase One trade agreement with the U.S., he said.

“So I think that we can look forward to still good sales,” he said.

Another positive is the recently announced Section 32 commitment for government purchases of $60 million worth of fluid milk products and $50 million worth of butter, he said.

But the milk futures market is surprisingly flat and reflective of a naive forecast, he said.

“There’s a lot of potential risk out there. But we can’t really see the things or have keen insights into what we think are going to drive these prices any more than just a month or two in advance,” he said.

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