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Milk-Feed Margins Could Be Stressed This Fall and Winter

Jim Dickrell

September 21, 2020

Milk-feed margins could be stressed this fall and winter as both milk and feed remain highly volatile due to the COVID-19 pandemic, weather and export challenges, says Dan Basse, president of AgResources Company based in Chicago, Ill.

Basse spoke recently during a Professional Dairy Producers of Wisconsin Dairy Signal podcast.

He notes that a recent survey by the U.S. Restaurant Association shows that upwards of 100,000 restaurants have or will close this past summer and into fall due to the pandemic. The Association also speculates that another 40% of restaurants could be subject to closure next spring due to low traffic levels brought on the pandemic over the winter months.

This means that upwards of 50% of U.S. restaurants could eventually succumb to the pandemic. “That would be a body blow to butter and high-end cheese demand,” says Basse. That would stress cheese markets but severely test Class IV markets next spring.

And at some point, the U.S. government will also step down its government assistance in food buying and direct payments to dairy farmers.

Slaughter rates of cull cows are also nearly 100,000 cows below the levels of the past few years. “Normally, slaughter rates step up in September and October, but farmers are keeping cows back,” Basse says. “There is likely more milk to come.”

The other problem is feed prices. Corn is rallying faster than milk. “You can still make money, but you have to be protected and you have to watch your costs very carefully,” he says. 

U.S. corn production could be near record levels this year, projected at 14.9 billion bushels, which would normally bode well for feed prices. (The record came in 2016 at 15.2 billion bushels.) But China might be gearing up to purchase significant amounts of corn (they are already buying shiploads of soybeans) since corn prices there exceed $9/bu in some provinces heavily impacted by typhoons and flooding.

Basse’s bottom line: “You have to have a plan to accommodate these market conditions.”

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