For the past several weeks milk markets have enjoyed a bit of a rally in prices with Class III moving to pre-COVID-19 levels for prices. It's been driven largely by a surge in demand and falling milk production. And while it's good to see prices moving up, economist warn a push to the upside is unlikely to last.
In fact, they say producers should use this time to manage price risk for what could be several months of extreme volatility.
“I think that right now the strength that we’re seeing is justified, given the amount of purchases from the USDA and some of the factors like the strong demand just at least for the initial refilling of the pipelines and the food service,” says Ben Laine of Rabobank. “But we need to remember that as we go forward, this isn’t going to be sustained.”
Laine expects there will be slower worldwide demand, so exports could also suffer.
There's still plenty of supply pressure on the dairy market. The latest April cold storage report shows cheese stocks rose 8% last month with more than 1.4 billion pounds of cheese in refrigerated warehouses as of April 30th. Butter also up with more than 368 million pounds in storage, 19% higher in just a month’s time and 27% higher than a year ago. Lack of restaurant demand driving that near 60-million-pound increase.
Some of that increase in stocks driven by increasing milk production in April. USDA reporting it was up 1.4%. Cow numbers were up 49,000 head from a year ago, but down 4,000 from March. USDA reporting the April production report does take into account an estimate for dumped milk due to the loss of demand caused by the pandemic. But industry analysts say the report does not include surplus milk fed to calves and cows because there is no way NASS can get an accurate estimate of the amount of milk fed on-farm. The Central Federal Milk Marketing Order reports more than 23-million pounds of milk was either dumped or used as animal feed under Class IV utilization in April.