While the outlook is better for dairy markets than it was in the early months of the COVID-19 pandemic, there are still uncertainties ahead.
“We aren’t quite done with COVID yet. Unfortunately, we’re at another peak,” Mark Stephenson, director of dairy policy analysis at the University of Wisconsin, said during the latest “DairyLivestream” webinar.
The pandemic has had pretty heavy impacts on the marketplace. Things are now going into a tailspin of worldwide recession because the pandemic has caused a lot of supply-chain disruptions, not just for dairy but virtually every supply chain across the globe, he said.
“It will have an impact on dairy demand if people remain out of work and if we really can’t get back into the restaurant segment in a serious and strong, meaningful way,” he said.
After declining in the early months of the pandemic, U.S. milk production has come back strong and was up 3% year over year in November. Increases above 2% are in the big growth territory, and that almost surely needs to be handled by exports, he said.
Milk production in the European Union, Oceania and Argentina has also come back, he said.
“We need worldwide demand to hang tight if we’re going to continue to sell a lot of dairy product into export markets,” he said.
But while there is uncertainty, there is reason for optimism in dairy markets, he said.
There is a fifth round of the USDA food box program, which has been expanded to a variety of dairy products in addition to cheese and fluid milk. Grocery store sales have remained above a year earlier, and the industry is starting to move a little more dairy product through foodservice and institutional channels, he said.
There’s also some back-to-work happening with some version of normal. There are additional export opportunities, and there are COVID vaccines and better testing and tracing taking place, he said.
“All those things I think give us some optimism about dairy markets this next year,” he said.
But there are still concerns about how rapidly the vaccines will be administered, and it’s going to take some time before herd immunity is achieved.
“Even when we do, the U.S. is going to take a while to dig out from this recession — as is much of the rest of world. This is not going to be an easy thing for us to climb out of,” he said.
As for milk prices in 2021, he’s forecast U.S. average prices at $18.50 per hundredweight for the all-milk price, $17.35 for Class III and $16.56 for Class IV.
“I think we’re going to have some more tightness in the marketplace during some periods of time, and I think we’re going to see some time periods where our markets our challenging again. I do not expect the kind of troughs that we saw in April and May,” he said.
That’s because the markets better know how to handle another shutdown in the U.S. marketplace if that happens, he said.