Dairy Market Snapshot

Northwest Situation There are two key factors in dairy markets: COVID-19 and oversupply of milk. In the short run, a rush on grocery stores will favor most dairy products. For the remainder of the year markets will respond to fundamental oversupply conditions left in the wake of COVID-19. Producers and processors are adjusting to rapidly changing market conditions. Class III prices peaked near $18 per cwt in January. Since then futures prices fell more than $4 per cwt. Class IV futures contracts experienced a similar precipitous decline through the first quarter. 2020 contracts lost more than $3 from January through the third week of March.


Nationally, milk production increased 1.5%. In Idaho, Oregon and Washington specifically; February production was up 1.2% year over year with an additional 34,000 head. Processors continue to grapple with the balance of milk supply and regional processing capacity. Supply chain challenges as well as school and restaurant closures have created additional headwinds in the dairy industry. However, anecdotal reports suggest retail sales are on the rise. Specific to the Northwest, oversupply and limited processing capacity have led some processors to implement production caps and stiffer penalties for over production. As a result, producers are faced with challenging decisions to meet processor requirements, including adjusting feed rations and reducing herd size to stay within their allotments.

National Situation Consumption Restaurant and school closures through March and into April will challenge consumption in the near term as a signification proportion of fluid milk is consumed through the school systems.

Cold Storage Report The Cold Storage Report released Feb. 24, 2020, by USDA’s NASS indicates cheese stocks were up 2% from the previous month and down 1% from Jan. 31, 2020. Butter stocks were up 28% from the prior month, and up 15% from one year ago. The announcement of higher butter stocks and slowing shipment of powder ultimately drove class IV futures sharply lower. This suggests unprofitable returns for producers shipping milk to class IV processors.

Dairy Cow Slaughter U.S. dairy cow slaughter was near 300,000 head in January followed by a steep seasonal decline in February. Slaughter rates have seen significant increases as older cows are retired more quickly. However, higher per head production has muted the impact of the higher slaughter rates. Dairy heifers held for replacement on Jan. 1, 2020, totaled 4.64 million, down 1% from the previous year. This should tighten U.S. dairy replacement markets, which have seen price appreciation primarily for high quality fresh cows, springers and bred heifers. Regionally, supply management may require liquidation of cows, temporarily suppressing Northwest cow values.

Feed – Corn The USDA is projecting the 2020 average corn yield will be 168 bushels per acre. This put total production at 13.7 million bushels, down 5% from last year. Total supply was down about the same percent due to large carryover stocks. Projected use is down, limiting the price effect of lower production. The 2019-20 corn price forecast remains at $3.85 per bushel.

Dairy Margin Coverage As of March 2020, the USDA reported 82.3% of all operations with established production history are enrolled with $312 million in payments. Idaho, Oregon and Washington received $17.24 million in payments equating to $67,000 per enrolled operation. Total enrollment in the three states total 767operations or 77.7% of the dairy operations in the Northwest.

International Situation Trade and Exports Phase one of the U.S.-Japan Agreement was passed in October 2019, removing tariffs and providing greater market access for U.S. dairy, beef and other agricultural products. USMCA was signed into law in January 2020. The agreement gives greater access to agriculture markets across North America.

The U.S. and China negotiated what is termed “phase one” of a trade agreement in December 2019. This preliminary agreement removes the threat of new tariff impositions and reduces already imposed tariffs. As part of the agreement, China is expected to purchase $50 billion of U.S. agricultural products.

Exports finished 2019 with strong results led by rising global demand for skimmed milk powder. Expectations at year-end were for continued increases in exports with January 2020 showing total export volume up 20% year over year. Disruption of world supply chains have created an environment of limited export capacity. Recently executed U.S. trade agreements with Mexico, Canada and Japan support a strong 2020 outlook after the COVID-19 pandemic eases. Cheese exports are expected to grow 3% in 2020 to 365,000 tons. Butter exports are expected to decline by 4% as increased milk production is used for cheese and whole milk powder. The March 10, 2020, WASDE report adjusted strong export expectations down slightly as global demand through the first half is expected to slow. Overall, global dairy trade and export demand for U.S. products remain strong.

Europe and New Zealand Dry weather throughout the summer months limited feed quality and availability in key dairy regions across the EU. Preliminary data show October EU milk production up 0.3% over 2018. Milk production in France increased 1.4% year over year with the Netherlands increasing 2% and Poland increasing 1.3%. One of the wettest autumns on record weighed down milk production in Ireland and the UK with output down 3.6% and 0.6% year over year, respectively. Water allocation and adverse weather conditions in several regions of Australia and New Zealand will decrease milk production. The USDA forecasts Australia’s milk production to shrink in 2020, reaching its lowest level in 25 years.


Outlook According to the March 2020 World Agriculture Supply and Demand Estimate, 2020 milk production will rise 1.8% from 2019.

Mild winter conditions nationally and increased production per cow has added to an already oversupplied marketplace. Slowed exports due to increasing travel restrictions worldwide, school closures and social distancing coupled with further increased production as herds approach spring flush project additional softening to the milk market.





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