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Volatility back in U.S. milk prices

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U.S. milk prices climb above $20 per cwt just weeks after hitting lows in the $10 range. Supply chain disruptions related to COVID-19 lockdowns and a move to reopen restaurants is blamed for the volatility.
U.S. milk prices rise amidst record climb in cheese price

Just a few weeks ago U.S. consumers were limited by retailers on the volume of dairy products they could purchase at one time because of supply chain disruptions related to COVID-19. This came as producer milk prices sunk to around $10 per hundredweight (cwt).

Within the past month Class III milk prices soared to $21 per cwt. in a perfect-storm scenario marked by restaurant openings as COVID-19 lockdowns were slowly lifted.

Ben Laine, a dairy analyst with Rabobank, said a sudden drop in milk supply marked by processing slowdowns, and a need to fill a supply chain pipeline emptied in the wake of government orders to close restaurants and schools, sent block cheese prices into record territory.

The volatility in milk prices comes as dairy production typically hits seasonal peaks in the United States, according to Mark Stephenson, dairy markets and policy expert with the University of Wisconsin, Madison. Stephenson spoke in a recent webinar on the sudden price volatility and how within the past 90 days the price of cheese as a commodity went from $1 per pound to over $2.80.

By May the seasonal upward trend in milk production was reversed as U.S. milk processors tempered their supplies of milk by placing caps on how much milk they would purchase. The USDA said milk production in May was down 1.1 percent, compared to the previous year. This came as dairymen were forced to dump milk at the farm level because of the processing caps set by the processors. That has largely ceased as retail sales have improved and restaurants are beginning to increase their supplies of dairy products.

At the same time, government purchases boosted demand. Moreover, as U.S. milk prices tracked lower than world prices, this stimulated improved demand for exports, Stephenson said.

Dairy experts say the high prices are unsustainable.

Annie AcMoody, an economist with Western United Dairymen, a trade association based in California, said U.S. cheese prices are now back above world prices. This will surely slow export opportunities "which will eventually hurt our competitiveness and export volumes," she said.

As COVID-19 outbreaks rise again in certain locations across the U.S., AcMoody says another round of closures by the states could send milk prices back into a tailspin and quickly erase any financial gains dairy producers are seeing.

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