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Milk prices to be lower, less volatile in 2021

Peter Cade/Getty Images A herd of Jersey cows out in a field looking directly at the camera
MORE MILK: USDA’s milk production report showed October production was up 2.3% from October 2019, the second month in a row with a 2.3% increase over the previous year. The rise was the result of 0.5% more milk cows and 1.9% more milk per cow.
Dairy Outlook: USDA predicts the all-milk price will average $18.25 for 2020 and $17.70 for 2021.

Despite rather strong production, milk prices have continued to climb during November.

“The September Class III was $16.43, strengthened to $21.61 in October, and November will be close to $23, surpassing the previous November record high set in 2014 at $21.94,” says Bob Cropp, University of Wisconsin-Madison dairy economist.

According to Cropp, continued government purchases of cheese under the Farm to Families Food Box Program, cheese exports above a year ago and higher retail cheese purchases strengthened cheese prices. Increased dry whey prices pushed the Class III price higher.

On the CME, 40-pound block cheddar cheese hit $2 a pound on Sept. 3 and continued to rise, reaching $2.78 at the end of October. Barrel cheese started September at $1.44 per pound and increased to $2 by Oct. 6 and $2.53 at the end of October.

Price drop

“But the Class III price will take a big tumble in December and could fall close to or below $16,” Cropp warns. “Cheese prices came down rather fast in November, which will impact the December price.” The block cheddar cheese price fell below $2 a pound on Nov. 13; on Nov. 20, it was $1.64. Barrels fell below $2 a pound on Nov. 12 and were $1.40 on Nov. 20.

“Forecasting milk prices into next year has so many unknowns. If the COVID-19 virus comes under control and things return more to normal by the second half of the year, it would have a big impact on milk prices,” Cropp explains. “As of now, the virus is hurting the U.S. economy and the world economy, which does not bode well for domestic sales and dairy exports.”

Dairy producers have responded to much improved milk prices, along with government payments, and milk production is now running relatively high.

“If milk production continues at this rate, it will be a challenge for domestic sales and dairy exports to hold up milk prices,” Cropp says. “Will dairy cooperatives implement base-type milk production plans on dairy producers liked they did earlier this year to slow milk production? Will some type of Farm to Families Food Box Program continue into next year?”

USDA’s milk production report showed October production was up 2.3% from October 2019, the second month in a row with a 2.3% increase over the previous year. The increase was the result of 0.5% more milk cows and 1.9% more milk per cow. Milk cow numbers started to climb in July and jumped another 14,000 head from September to October, bringing the total increase to 40,000 head. 

With milk production growing at this rate, even the combination of domestic sales and exports cannot prevent the price of milk from a rather big decline, according to USDA.

Strong dairy exports

Cropp says dairy exports will be an important factor in determining milk prices for the rest of 2020 and for 2021.

“Dairy exports have supported higher milk prices in 2020,” Cropp says. “September marked the 13th straight month that the volume of exports was higher than the year before. Through September, exports were equivalent to 16.2% of U.S. milk production on a total milk solids basis. At this pace, 2020 exports could exceed 2018’s record year.”

September’s export expansion was the result of year-to-year growth in whey product exports primarily destined to China and better-than-expected cheese exports, despite domestic cheddar cheese prices being above world prices since May.

“Of what we know now, milk prices in 2021 are likely to be less volatile than this year and will average lower than this year,” Cropp explains. “USDA’s latest forecast has the Class III price averaging $18.55 for 2020 and $17.25 in 2021. The average all-milk price was forecasted to average $18.25 this year and $17.70 in 2021. No doubt, this forecast will be revised as more comes known about developments in 2021.”



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