Coronavirus weighing heavily on dairy markets

The coronavirus pandemic has been causing a domino effect on just about every commodity market, including the dairy industry.

Peter Vitaliano, chief economist for the National Milk Producers Federation, a lobbying group that works on behalf of dairy farmers and marketing cooperatives, said he has been closely monitoring the projected price of milk that dairy farmers are going to receive this year. He said dairy farmers have had a rough five years, since about 2014, for a number of reasons. However, they experienced some relief toward the end of 2019 and this year was looking reasonably decent, but then the coronavirus’ world impact sliced prices and soured demand.

“At the beginning of March, the outlook was that farmers would receive about $18.50 per hundredweight average price throughout the U.S. for all of 2020,” Vitaliano said. “That has steadily deteriorated and hit the bottom of about $17.25 March 18.”

Prices have gone up and down since non-essential business and schools have been closed and restaurants are not being patronized. Vitaliano predicts prices to hit bottom in May.

“This is going to be very tough for dairy farmers on top of a series of mediocre to poor price years that has basically accelerated the decline of dairy farms in this country and this year’s going to continue that trend,” he said.

Although the run on supermarkets saw consumers cleaning out dairy shelves, Vitaliano says this has not compensated for the loss of demand from restaurants. Additionally, he said some supermarkets might be temporarily taking advantage of the run on grocery stores to either raise prices or not offer the usual discounting, cutting the dairy farmer out on extra profit.

“What’s happening is we’re losing a very significant amount of dairy products that are consumed in food service,” he said. “That’s obviously taken a huge hit as restaurants and most food establishments’ services are closed. They are still doing take-out, but there’s a net demand effect with the loss of food service with cheese, in particular.”

The closing of schools have also hampered dairy demand because large amounts of fluid milk are consumed by students in food service programs.

 “The net effect is a significant loss of consumption on the food service side, offset somewhat by continuing take-outs and delivery for food service, but also increased consumption at retail,” he said. “The futures markets indicate that on average they’re expecting a demand loss to be negative and that’s effecting milk price outlook.”

Vitaliano said he fears the imbalance of dairy sold through food service will cause some storage facilities to run out of refrigerated shelf space to store certain dairy products.

“The system will be heavily stressed and dairy farmers are probably already aware of that,” he said. “It will definitely not be a good year, no matter what happens.”

Efforts to keep the dairy industry stable

Vitaliano said there has been a significant long-term decline in fluid milk consumption in general for a number of reasons. One reason is that families are eating fewer meals at home, particularly breakfast, at which children often eat cereal.

“With kids at home, fluid milk consumption is increasing, demonstrated by the fact that milk is hard to keep on the grocery store shelves,” Vitaliano said. “How long-term of an effect that is going to have is hard to say, but any increase in retail consumption at home by young people is going to be offset by a decline in consumption of milk in schools.”

However, in many cases although schools closed, they are working to maintain school meals for students who are enrolled in government assistance programs and all of those meals are required to be accompanied by milk.

Vitaliano says NMPF is working on assistance for dairy farmers in the various emergency legislative packages that are going through Congress. He said they are asking the U.S. Department of Agriculture to basically reopen sign-ups for the Dairy Margin Coverage Program, which provides direct payments when the margin between milk markets and feed costs go below certain levels.

“Initially when the sign-up for this year was concluded, the outlook was that there were really not going to be any payments this year,” Vitaliano said. “A number of farmers who’d signed up in the previous two years when there were a significant number of payments, chose not to do so this year, and then the situation changed considerably.”

Vitaliano also said the NMPF is asking USDA to use some emergency money to purchase dairy products and distribute them to food banks where they will help the supply and demand balance for milk and also provide dairy products for food assistant programs.

“With large numbers of people losing their jobs, there’s going to be a huge increase in demand for food assistance and dairy is always popular within these programs,” he added.         

Vitaliano said NMPF is working with USDA to provide programs to compensate dairy farmers for milk that cannot be profitably delivered because of back-ups to the system.

“Milk processing plants were full and running close to capacity even at the beginning of the current situation. The fact that there may be interruptions and if a small number of plants are forced to be closed it would take a critical amount of capacity out of the system or (cause) a shortage of truck drivers,” Vitaliano said.

Lacey Newlin can be reached at 580-748-1892 or [email protected].