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2021 Southwest Economic Outlook: Southwest economists and specialists weigh in on the 2021 economic outlook.

January 26, 2021

3 Min Read
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2020 was certainly a rollercoaster in dairy markets and in that regard not any different than the rest of agriculture, or the economy. The new year might offer a chance for markets to smooth out. 

Turmoil throughout the economy on top of larger milk production than a year ago led to collapsing milk product prices. Cheddar cheese in 40-pound blocks declined from $1.97 per pound, pre-pandemic, to $1.13 in May. Butter declined from about $1.82 to $1.13 per pound over the same period. In response to low prices, producers culled more dairy cows and cut production per cow to reduce milk production in May by 0.5% compared to the year before.   

Following the milk production cut and reopening economies, cheese prices rebounded to almost $2.80 per pound, declined by another $1 per pound, then bounced back to $2.73 per pound. Higher milk prices led to a rebound in milk production per cow, reduced cow slaughter, and increasing total milk production. CFAP payments certainly helped many dairy farmers weather the financial storm.   

Volatile prices also highlighted milk pricing changes enacted in the 2018 farm bill. The Class I mover was changed from the higher of the Class III or Class IV price to the average of the III and IV plus 74 cents. The result following the record run-up in Class III prices was a loss in Class I receipts to producers. The rapid rise in cheese prices also led to large negative ppd’s.   

Related:Milk production rises, milk prices fall

The dairy industry’s unique set of products, from fluid milk to cheese and butter and as an ingredient in many foods led to widely diverging prices in 2020. Closures of restaurants and schools and the shift to grocery purchases and home cooking shifted milk consumption between various products. This helped with fluid milk and butter consumption at home.   

Where to in 2021? 

The path of milk prices in 2021 depends, to a considerable extent, on the path of recovery from COVID-19. A return to economic growth and reduced unemployment will boost demand, moving back to more normal relationships between at home and away from home consumption.   

Supply-side factors may be more predictable. Milk producers relying on purchased feed will face sharply higher feed prices that began in the second half of 2020. The rebound in milk prices that reduced dairy cow culling means that the industry will enter 2021 with more cows than a year ago. When coupled with higher trending production per cow, milk production will likely increase at least 1% in 2021. The increase in milk production will result in lower annual average milk prices in 2021 than in 2020.   

2021 Outlook articles:

Source: is Oklahoma State University and Texas A&M University, which is solely responsible for the information provided and is wholly owned by the source. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset.

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