The Dangers of a Milk Market Fueled by Government Aid
January 8, 2021
The stock market isn’t the only market fueled by COVID relief and aid announcements. The milk markets have spent the past few months responding positively to news of additional rounds of Farmers to Families Food Box Program.
Just this week, USDA announced a fifth round of Farmers to Families Food Box program, with plans to purchase an additional $1.5 billion of food to distribute through the program. The news sent milk futures racing higher.
But with just over a week until Joe Biden is sworn in, one dairy analyst says the markets will need to get back to trading normal demand factors, not government support programs.
“Even as you look at the forward curve, the market tapers off pretty hard as you get through March and April,” says Mike North of ever.ag. “Even on days where we've seen limit and double limit moves, some of those months beyond that point were even trading negative.”
North says without a government bid in the dairy markets through programs like Farmers to Families Food Box, the market will need to rely on factors like domestic demand and food service, which could be a negative in the months ahead.
“Without a government bid in this market, we have to return back to the normal players, the normal routines, the normal flows,” adds North. “And let's just face it, if we're shutting down the economy in any capacity or keeping people at home, you don't get that food service rebound that everybody is really counting on to bring us back to the normal flow of products. So, all the way around, without a government bid, this market is very, very susceptible to downside risk.”