Milk prices live on knife’s edge
June 11, 2020
Dairy, like many other commodity markets, has seen ever increasing volatility over the course of the last several decades. That’s been further accentuated by the COVID-19 pandemic. The violent shifts in Class III prices from March to June are perfect examples of this change.
It’s something that Cornell’s Andy Novakovic addressed during the June 10 Hoard’s Dairyman DairyLivestream event. “Milk prices kind of live on a knife’s edge. You push it a little bit this way with supply, or you push it a little bit that way with demand, and those prices can go all over the place,” the dairy economist explained while discussing the volatility of Class III prices.
“Commodity markets in general have this kind of characteristic of being sensitive to what looks to be pretty small changes in production and consumption. Boy, there’s going to be no year that’s going to be a better demonstration of that than the first few months of 2020,” he continued.
Novakovic reminded listeners that June Class III prices in the neighborhood of $20 per hundredweight are not historic values for the category. In fact, they merely match the predictions that were occurring in November and December 2019. Although, even achieving that might seem like a minor miracle following the milk dumping and prices that occurred in March.
In for a wild ride During the DairyLivestream webcast, the experienced economist encouraged dairy producers to ask themselves if these prices are sustainable. “You thought you had volatility before buddy; don’t get too confident about what the next 12 to 18 months are going to bring,” he warned.
The reason that concern remains is that many questions are still swirling surrounding the return of consumer demand. “How long does it take before we can restore any kind of vigor to purchasing power?” Novakovic questioned. “If we don’t have that, then we’re going to continue to have sluggish sales, not only in dairy products, but the rest of our economy.”
Fellow DairyLivestream guest, Steve Kyle echoed Novakovic’s comments and encouraged listeners to make thoughtful decisions.
“I do know that in a couple of years, we’re going to be through this one way or the other,” the Cornell economist said. “We’re either going to have a vaccine or we will have adopted a new way of existing that will allow us to continue to function as a country. In the meantime, there are going to be some massive ups and downs, and I wouldn’t bet my rent on one way or the other. I would try and stick it out and be conservative.”
An ongoing series of events DairyLivestream will air twice each month. The next broadcast will be on Wednesday, June 24 at 11 a.m. CDT. Each episode is designed for panelists to answer over 30 minutes of audience questions.