July 2020 Dairy Situation & Outlook
By Bob Cropp, Professor Emeritus, University of Wisconsin-Madison
This is an excerpt from the originally published Outlook available here: https://fyi.extension.wisc.edu...

Dairy product prices and milk prices continue to do the unexpected.
January forecasts called for 2020 to be a recovery year with the best
milk prices in 5 years. But, Covid-19 virus outbreak came along
resulting in a loss on milk and dairy product sales due to schools and
universities closing, restaurants being shut down, cancellation of
conferences and sporting events. Dairy product prices have brought
down the Class III price from $17.05 in January to $12.14 in May and
the Class IV price from $16.45 in January to $10.67 in May.

By June the demand for milk and dairy products improved with
restaurants partially reopening, and their need to restock cheese and
butter, people now eating at home and significantly increasing store
purchases of milk and dairy products, the government purchasing a
lot of dairy products, mainly cheese from May 15 to June 30 under
the Farm to Family Food Box program, and with dairy product prices
below world prices dairy exports increased. In May dairy export
volume was the most in more than two years. Nonfat dry milk/skim
milk powder exports were the most ever, and up 24% from a year
ago. After running below year ago levels cheese exports in May
exports were 8% higher than a year ago, the second-best month
ever. May whey exports were 16% higher than a year ago. On the
supply side dairy cooperatives had implemented base excess plans to
their dairy producers that reduced milk production. May milk
production fell 0.5% below a year ago. With dairy product prices and
milk prices being rather sensitive to small changes in demand and/or
supply dairy product prices improved beginning in May and in June,
with cheese setting a record high in June.

With these changes in July dairy product prices Class III will be about
$24.30 but below the record $24.60 set in September 2014. The July
Class IV price will be near 13.80, well below the record $23.89 set in
August 2014. But the big question is where are prices headed for the
remainder of the year?

Important to keeping milk prices falling to low levels will be milk
production. Milk production needs to stay well below a 1% increase
over a year ago. After running well over 1% above a year ago milk
production fell 0.5% in May and was up just 0.5% in June. Since
March milk cow numbers have fallen each month being down 35,000
head as of June. But June cow numbers were still 23,000 head higher than a year ago, or +0.3%. Milk per cow has been running well below

trend with June up just 0.2% from a year ago.
The sales of milk and dairy products stay below a year ago as
restaurants and food service remain only partially reopened. It looks
like many schools, colleges, and universities with use virtual learning
this fall rather than in person classroom. High school, college and
professional sports will be cancelled or operate without fans in the
stands. The government will continue the Farm to Family Food Box
program from July 1to August 31. With the exception of butter, the
price of cheese, nonfat dry milk and dry whey have been below
world prices and price competitive. Dairy exports through May have
been above year ago levels. But the price of cheese and nonfat dry
milk moved above world prices in June and July which likely slowed
exports. The positive for dairy exports is milk production for major
exporters is lower than a year ago or only showing small increases
leaving an opportunity for U.S. exports.

So not knowing when we will see some positive signs the COVID-19
virus is coming more under control allowing more opening of the
restaurants, schools and colleges and other activities, and how dairy
exports will do for the remainder of the year and the level of milk
production milk prices are uncertain. We should still see a seasonal
increase in butter and cheese sales during the holidays which will
help hold prices. Also positive is the stocks of butter and cheese
while still above year ago levels have declined from May 31st to June
30th. As of June 30th and compared to a year ago butter stocks
were still 10.8% higher than a year ago, American cheese stocks just
1.1% higher and total cheese stocks 2.6% higher. As of now it looks
like the Class III price will trend lower in the months ahead but not
fall to low levels. Class III dairy futures remain quite optimistic with
Class III above $20 for August and September, in the $19's in
October, the $18's in November before falling below $17 in
December. Class IV futures show only small strength staying in the
$14's and only reaching the $15's in December.