Milk futures, like other commodities, have spilled lower in the past few weeks.
Due to the global coronavirus pandemic, the trading world has deemed that a mass selloff of commodities in the short term is appropriate action, due to concerns that demand will be lost as much of the world is now being asked to shelter at home, or is under quarantine.
For May 2020 Class III milk futures, prices have fallen from $18.03/cwt to a dismal $12.51/cwt over the course of the first quarter of 2020.
Over the past month, both Class III (cheese, whey, and fluid milk) and Class IV (powder milk and butter) milk prices have suffered a washout -- dramatically lower prices and relentless selling pressure day in and day out in the dairy spot trade, with cheese blocks and barrels, milk powder, and butter all enduring that same dramatic price loss.
Dumping milk in Wisconsin
You may or may not have seen the images on social media. More than 110 loads of milk have been dumped across Wisconsin this week. This story is still developing in Wisconsin, but truth of why this is happening is threefold: a short term shift in consumer demand, supply chain issues, and short term overproduction of milk.
No schools, no milk
Due to COVID-19 schools across the nation are closed. Sending milk into schools is actually the number one market for fluid milk in the United States due to school lunch programs.
While many schools still try to provide brown bag “to go” lunches for students, the overall milk consumption volume is down considerably. If milk isn’t being packaged into those cute little cardboard cartons that schools use, that also immediately impacts where fluid milk can go, be used, and processed. So now all those little square cartons of milk are not being filled, and the industry is scrambling to find additional large plastic jug containers to put that fluid milk into. Another wrinkle: some milk processing plants have been impacted be the lack of available workers (due to COVID-19) to keep all production lines fully rolling. That means production facilities generate fewer products and use less raw dairy. Fluid milk seems to be the main dairy product struggling.
Wisconsin milk production increases each spring. This is called the “spring flush” because many calves are born in spring, and milk production on farms naturally escalates. Milk production overall in the nation has already been high, but for a couple months of the year, there is a natural additional amount that is added. More milk production is adding to the turmoil of the milk dumping.
What is Wisconsin doing about the milk dumping? According to a recent interview with Wisconsin Ag Secretary Randy Romanski, the governor of Wisconsin will write a letter to USDA to request that the federal government make purchases of dairy products. He will also ask USDA for a re-opening of dairy margin coverage program (which was open in the fall).
Cheese sales up
The outbreak of COVID-19 has actually helped cheese retail sales, while hurting restaurant sales. Cheese producers who ship to food service accounts are noticing a slowdown in orders while retail orders are stronger.
Some cheese plant managers are running seven-day work weeks! Dairies who sell their milk to these cheese processing plants can’t get their milk there fast enough. Consumers at home are eating cheese. Again, it was just the shift from getting cheese packaged for restaurant use, to now being packaged for retail use, and on to home tables across America.
Clearly no one was able to see how COVID-19, social distancing, and stay-at-home orders would impact the commodity sector. Now we are seeing disruptions not just to commodities, but also the supply chain structure for all food in the United States.
You have decades of consumer demand for commodities prepped for restaurant use, and is now being asked to immediately switch over to retail use. That is a process that takes a little time and the industry is doing its best to meet this new immediate short term demand switch.
This is all happening while being thoughtful of the future. Big question: Will we as a nation go back to “normal” in terms of eating out? Or will this result in a permanent shift to families slowing down and dining together more at home? Time will tell.
In the meantime, drink your milk.