The spring flush will shape dairy prices
Dairy economist Mark Stephenson predicts that 2020 will be a better year for milk prices — with a few asterisks. Stephenson, director of dairy policy analysis at the University of Wisconsin-Madison, gave his forecast during the Wisconsin Agricultural Outlook Forum held in Madison, Wis.
One of those asterisks, according to Stephenson, is the general economy. He said he doesn’t believe a recession will happen in 2020, but by the end of the year and into 2021, it is possible.
“Recession is one of those asterisks,” he said, “that has not been good for the dairy economy in the past as we typically see a moderation of dairy sales.”
Another factor is cow numbers. Despite low milk prices the last five years, cow numbers did not start to decline until 2018. Stephenson said that cow losses stabilized in 2019, but we did not see rapid growth, and he does not expect that to happen in 2020, either.
Dairy product stocks are another area to watch. “When stocks are burdensome, as they have been in the past couple of years, there is downward pressure on the prices to clear the markets of excess products,” he said.
When it comes to cheese, stocks were reduced some, but not a lot, in 2019. Stephenson said stocks are not tight, but they are at a more comfortable place, which should help improve prices.
Stephenson noted that since 2017, milk production has been on a downward trend in major dairy countries including the U.S. This has allowed global stocks to reduce.
He also talked about the demand for dairy products. While he recognized the downturn in fluid milk consumption, he pointed out that cheese, yogurt, and butter have all been growth categories for the dairy industry.
In his presentation, Stephenson also addressed the current health crisis in China.
“Thunk. That is the sound of coronavirus hitting the market,” Stephenson said. He shared that since coronavirus hit the headlines, milk futures price fell 70 cents for the next several months.
“One of the world’s largest buyers is beginning to cocoon themselves,” he said. “A lot of people are concerned about market impacts, including our dairy industry.”
The markets are watching and waiting
So, what do these factors mean for dairy prices in 2020?
“Watch the flush,” Stephenson said. “That’s going to be the next piece of information the market wants to see.”
He said if it is a big flush this spring, with milk production of 620 million pounds per day in April, May, and into June, then that indicates we will have plenty of dairy product and prices are going to grow more slowly, he explained.
“If it’s a light flush, 615 million pounds or less, then I think we have room for stronger growth in milk prices,” Stephenson said.
Stephenson is predicting the All-Milk price to be up about $2.36 for 2020, then climbing throughout the year another $1.20 per hundredweight. “I think we could hit $20 milk this year, toward the end of the year,” he noted.
Still, he doesn’t expect the high level of farm loss to immediately reverse just because milk prices are moderating. “This will have a long tail,” he explained, “and it will take another couple of years before we fall back into equilibrium.”