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‘Too much milk’ despite strong market

‘Too much milk’ despite strong market

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Dairy cows in barn

Peter Vitaliano says 2020 looked to be very positive for the dairy industry. But like most of agriculture, that optimism dwindled as COVID-19 tightened its grip globally.

Numbers have since recovered somewhat as cooperatives cut milk production and export figures improved.

“When the pandemic hit, the industry was coming off several years of lower-than-average prices, but prices were decent in the second half of 2019,” says Vitaliano, chief economist with the National Milk Producers Federation.

“Milk production increased at a rapid rate over the beginning of 2020, so when the pandemic hit, it was very difficult.”

He says with the food service industry basically shut down due to pandemic restrictions, markets for products like cheese were more limited. Vitaliano says it took time for the industry to shift gears to producing more items consumers could use at home.

“The supply chain needed time to switch over,” he says.

Over the past few months, more and more consumers have ventured out of their homes and into restaurants, providing a familiar market for milk products. Vitaliano says the export market is fairly strong, too.

“On the balance, however, there’s still too much milk,” he says.

The dairy industry also benefited from government payments issued to farmers during the height of the pandemic, which Vitaliano says provided a major boost to all producers.

How dairy farms did in 2020 and into 2021 largely depends on geography, says Christopher Wolf, a professor of applied economics at Cornell University. He says some farms did very well over the past year, while others suffered.

Wolf says as 2021 unfolds, there are several key factors to consider. He says while milk prices are regaining some strength, things like higher labor and feed costs will cut into any profit.

“This year milk production isn’t too bad, but the milk-to-feed cost doesn’t look as good,” Wolf says. “We have higher milk prices, but not much of a profit.”

Feed costs will depend heavily on the weather outlook in feed growing areas. Wolf says volatile weather in the Corn Belt and high-producing forage regions could further cut into profitability.

“Continued drought in the West will not help hay prices,” he says.

Wolf does not believe the industry will see the price volatility it saw in 2020 over the rest of this year.

“More people are going out to eat, and that should really help out the dairy industry,” he says.

Vitaliano says the number of dairy producers continues to shrink. He says numbers were down 7% in 2018, 9% in 2019 and 7.5% in 2020.

“Those percentages are based on numbers generated early in the year, so we won’t know for a while how many producers we lost to the pandemic,”

Vitaliano says. “Those numbers may not be much different than what we’ve seen over the last few years.”

Ultimately, Vitaliano believes a cut in milk production is going to be necessary to help improve the price outlook.

“Prices are starting to deteriorate again due to excessive production,” he says. “We are seeing some new capacity coming online, which will help out some. The outlook is mixed, but the industry survived the worst of the pandemic.”

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Jeff DeYoung is livestock editor for Iowa Farmer Today, Missouri Farmer Today and Illinois Farmer Today.

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