“Looking at 2021, it’s really going to be a matter of demand recovery,” said Ben Laine, a dairy economist with Rabobank.
Global milk production is expected to grow but only at a moderate pace, so the question is whether life will get back to some level of normalcy and how fast, he said.
Restaurants opening, schools resuming in person and the vaccine encouraging people to get back to the next normal will be a good sign for prices, he said.
But the U.S. dairy market will also continue to be sensitive to government support, the USDA food box program, exports and COVID-19 cases, he said.
“The markets are going to be sensitive to any of that kind of news,” he said.
This week’s announcement of another round of the food box program is encouraging for the market, he said. The question of whether there would be more rounds of the program caused a lot of price volatility in the second half of 2020, he said.
There would be an announcement that supported markets. But then nobody knew what was next or whether there’d be another round, and markets would pale until the next announcement, he said.
“That’s really contributed to the ups and downs,” he said.
The food boxes did support cheese and milk prices, he said.
U.S. dairy exports were another strong factor in 2020 and an area of growth for the industry, he said.
“We hope we can maintain that momentum in 2021,” he said.
One of the advantages right now is the U.S. dollar has weakened, putting the nation in a favorable position for exports, he said.
However, the U.S. is still seeing strong milk production, he said.
“We’re still making a lot of milk, and that’s a little bit of a concern,” he said.
Slaughter rates have picked up and, hopefully, that will help, he said.
But milk prices on the futures market went up with the food boxes announcement and might continue to drive some production increases, he said.
Heading into winter with outdoor dining slowing, vaccine distribution off to a slow start and the potential for high milk production, the U.S. could end up with a milk surplus, he said.
That could happen regionally, and milk managers might have to reinstitute some of the base programs that limited milk production last spring, he said.
Dairy product stocks are at normal levels, except for butter, he said.
The food boxes, pizza and fast-food restaurants have brought cheese stocks back in line, and exports absorbed the extra powder and whey.
But it’s harder to draw down butter stocks with restaurants and events closed, and those stocks are hanging over the Cass IV milk market, he said.
“Even if demand picks up, product is going to be available for some time,” he said.
Price forecast for U.S. milk
Q1’21 – $15.93
Q2’21 – $17.06
Q3’21 – $17.30
Q4’21 – $17.46
Q1’22 – $16.68
Q1’21 – 14.06
Q2’21 – $15.04
Q3’21 – $15.72
Q4’21 – $15.86
Q1’22 – $15.54
Source: USDA, Rabobank