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Record cheese prices, strong exports and rising COVID concerns befuddle markets

July 27, 2020

Jim Dickrell

About the only thing you can say with certainty about July is that it has been one crazy month, say Wisconsin dairy economists Bob Cropp and Mark Stephenson.

In their monthly podcast released last week, they point to record block cheese prices, strong exports of nonfat dry milk and rising COVID-19 concerns that all point to market uncertainty for the rest of the year. The good news is that milk prices will be considerably stronger in the second half of the year than they were in the second quarter of 2020.

June’s milk production report, released last week, showed cow numbers down 10,000 head from May and down 35,000 head from March. Cow numbers are still 23,000 head above year-ago levels, but this is just 0.2%, notes Cropp. “Production per cow is running below trend, up only 0.2%,” he says.

World milk production is also slowing, with both New Zealand and the European Union, the world’s two largest exporters, showing restrained growth. U.S. dairy stocks are showing improvement as well. “Butter and cheese stocks both declined from the end of May to the end of June,” Cropp says.

Nonfat dry milk (NFDM) exports exploded in May, with the U.S. exporting 86% of its NFDM production in May. Normally, the U.S. exports roughly half of its NFDM production. U.S. NFDM prices remain competitive so those exports should continue and should continue to improve milk powder stock levels, he says.

The biggest cloud on the horizon is the COVID pandemic and how it plays out for the rest of year, Stephenson says. There has been an explosion of new infections in southern states which leaves uncertainty for school openings and restaurant sales. While retail sales remain strong, restaurant and institutional sales are a huge question moving into fall.

“I don’t see a collapse down to $12 that we saw in May,” says Cropp. “And I think the rest of the year will be a lot better than we thought it would be in spring.”

But just where the market settles remain to be seen. Pre-buying for holiday sales will help butter prices this fall. So Class III and IV prices in the $16 to $17 range seems most likely as we move into winter and 2021, he says.



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