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Stephenson, Umhoefer ‘look to the other side’ of coronavirus crisis in dairy

Progressive Dairy Editor Dave Natzke Published on 06 May 2020

There’s no disputing the dairy farmer income destruction as a result of the COVID-19 pandemic. There is, however, some good news emerging for producers and the dairy supply chain, according to presenters on a Professional Dairy Producers of Wisconsin The Dairy Signal podcast, May 5.

Comparing pre-COVID-19 (about Jan. 20) milk futures prices to prices on April 20, estimated 2020 U.S. dairy farm income fell about $10 billion, with Wisconsin dairy farm income down $1 billion, said Mark Stephenson, director of dairy policy analysis at the University of Wisconsin – Madison.

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The good news, said Stephenson, is that U.S. prices are competitive on global markets, and products are moving into exports. In addition, recent dairy product purchase announcements by the USDA and strong sales of dairy at retail are providing support to higher prices and in some cases, boosting Class III milk futures prices as much as $2 per hundredweight (cwt) in nearby months. While still far short of the $6-$7 per cwt lost since late January, Stephenson said he believes prices have come out of the deepest trough.

Retail sales are a bright spot in the dairy picture, and the good news reaches beyond pandemic buying of fluid milk, said John Umhoefer, executive director of Wisconsin Cheese Makers Association. He said retail sales has also been surprisingly good for cheese and butter, with the potential for longer-term benefits. If consumers become reacquainted with cheese and butter at home, it could mean a net increase in dairy product consumption as the food service industry reopens.

Retail sales won’t fill “a deep hole” created by the loss of food service sales, Umhoefer warned, but said the planned federal food purchases are also an outlet for getting dairy products to consumers. He said the Wisconsin cheese industry was aggressive in submitting bids for purchases from the USDA.

China’s rebuilding hog industry will increasingly require more U.S. whey, he added.

Economic recovery will be slow

Stephenson compared ongoing efforts within the dairy industry, including government payments and purchases and distribution of dairy products, to steps designed to “flatten the curve” in the spread of COVID-19. Recessionary forces fueled by unemployment will slow the full economic recovery.

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With about 85%-90% of Wisconsin milk going into cheese and about 90% of cheese sold outside of the state, private cold storage inventories are growing, especially for cheeses used in the food service industry, Umhoefer warned. Those supplies will hit the market in the future and will slow any “zippy” rise in milk prices.

“On the bright side, those processors taking that risk and storing product are taking in milk; they’re not turning milk away,” Umhoefer said. “But the longer we go through a time frame where you don’t have sales to food service, we are putting stress on the system because they are making cheese and not getting paid for it. They are paying dairy farmers the best they can, but there’s equity being burned in the industry because they’re making product with no sale.”

Stephenson said government dairy purchases during the COVID-19 pandemic are different from historical price support programs that placed products in storage that overhung the market. In this case, products are getting distributed directly to food banks and consumers. Once COVID-19 quarantines are lifted, consumers may want to keep dairy in their diets.

Both presenters said that once the crisis is over, the dairy industry may look different than it currently does.

Stephenson said that while the U.S. economy is largely built for efficiency, the effects of COVID-19 show the economy must be rebuilt with resiliency. Umhoefer said that may include a step away from just-in-time inventories and more diversification in manufacturing.

Due to decades of food safety efforts and ongoing employee health precautions, dairy’s workforce has generally remained healthy through the COVID-19 pandemic, Umhoefer said. He urged producers put a high priority on human health on their farms and to have candid conversations with their milk buyers and dairy processors, especially when it comes to managing milk supplies.

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“People haven’t turned away from dairy,” he said. “If you can get through this time, you will see demand return; you will see prices return. There’s going to be another side to this.”  end mark

Dave Natzke
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