The dairy industry has much to worry about beyond the current coronavirus pandemic, according to Mark Stephenson, director of UW-Madison’s Center for Dairy Profitability and dairy policy specialist with UW-Extension.
Even before the coronavirus pandemic hit, Stephenson said there were several economic indicators — as well as slowing gross-domestic-product growth in countries like China and weak economies in Europe, with some countries already teetering on the brink of recession — pointing to a possible recession in the U.S.
“The thing that I’m concerned about is when we realize the kind of depths that I think the recession is going to be, my guess is that overshadows COVID-19 itself,” Stephenson said May 21 during the “Farm Management Through a Crisis” webinar, part of the “Supporting Farmers During Challenging Times” series put on by UW-Extension. “This is going to be a couple years that we’re digging out of recession.”
The timing is unfortunate, Stephenson said, because COVID-19 hit and recession looms just as things were looking up slightly for the dairy industry.
But that dairy recovery was likely to have hit its ceiling a little earlier than originally projected even without a global pandemic.
Strong milk prices late in 2019 and early in 2020 led to increased milk production across the country in the first quarter of the year, Stephenson said. That production would have kept prices from climbing much higher than they were late in 2019 even without a pandemic, he said.
When the pandemic did hit, the bottom fell out of the dairy industry.
Despite more than 5 million cases of COVID-19 worldwide and more than 1.5 million in the U.S., Stephenson said the number of new positives in the U.S. is pointed downward. However, the same can’t yet be said of the trend in number of new cases in Wisconsin, which has seen about 15,000 positives and about 300 to 400 new positives each day, as of the end of May.
Restaurant closings have had a big impact on markets, but Stephenson said the dairy industry has done a good job at moving products around. About half of cheese is consumed outside of the home, so restaurant closures had a negative impact on those dairy sales, but pizza sales have helped on the cheese side of things.
After a big drop at the start of the pandemic, futures markets in the past month, have begun to show optimism for Class III and IV milk prices for June.
“We’ve had a great deal of price optimism coming back recently,” Stephenson said, citing optimism about continued strong grocery store sales, restaurant re-openings, export opportunities and a return to some sort of “normal.”
Cow numbers started to rise in early 2020 before farmers started culling in response to COVID-19. However, milk production per cow is up, which Stephenson said means more culling is likely on the way.
“I think we should be looking for culling opportunities,” he said. “In my opinion, we’re not yet out of this COVID-19 impact.”
After hitting record numbers in farm attrition last year, the rate of farm loss has been declining early in the 2020. However, Stephenson said, the coronavirus pandemic could cause the number of farm exits to increase again.
“That’s kind of a good-news story,” Stephenson said of the decline in the number of farmers leaving the industry. “But I expect we’re going to see that tick back up again over the next several months. This has been a pretty tough time for dairy farmers.”
Stephenson advises farmers continue to use caution based on the likely global recession as we come out of the current situation and a possible return or mutation of the coronavirus causing a follow-up blow to the dairy economy.
“I think it’s going to be a brutal year, but maybe not as bad as we thought when this thing got started,” he said. “But it looks like we’ll have a sixth straight year of low prices.”