For dairy farmers, volatility to the market is nothing new in recent years unfortunately. “2015-2018 was a real slump for prices,” said Chris Wolf, the E. V. Baker Professor of Agricultural Economic at the Dyson School of Applied Economics at Cornell University. “2019 was improved but not great, and coming into 2020 we were looking at a good healthy market and prices. It was $18 for most of the year for class 3, which to me means a really good year. And then Covid-19 hit, and prices went from around $17 to 14 in April and $11 in May. We’ve seen a remarkable bounce back in the last month or so, with June prices at $20. I think the real big question is, if we’re looking at $20 for class 3, $18 or so for July as of today (June 4th), and it’s still above $16 for the rest of the year, is that a sustainable price?”
For Wolf, that question relies a lot on the wholesale prices of cheese, butter, non-fat dry milk, and dry whey. “Cheese consumption in the US in particular was disrupted by the Covid-19 pandemic,” said Wolf. “If you look at Europe though, there are areas where consumption went way up, and that’s because Americans tend to eat more cheese when they eat out - pizza, quesadillas, cheeseburgers, you name it. And with the restaurant and hospitality industry (RHI) closed, that lead to a big shock to the system. Dairy co-ops put in limits, where members couldn’t market any additional products than what they made in March, some producers cut back production, the latter of which in the Northeast was pretty common. We talked to a lot of producers. Some were talking about potentially culling cows or cutting back nutritional supplements to curb production, but a lot said they planned to keep on keeping on and see what happens, and at this point that last stance looks like genius given current prices.
The sudden jump in prices could be attributed to numerous things according to Wolf. “The government has purchased dairy products through the food box program, and you have states reopening bars, restaurants and hospitality services that now need to refill fridges, so orders for everything have gone way up. Exports were also up with cheap cheese prices. When cheese was below $1/lb, it was a buyers market. Remember when oil prices went negative? That’s because there was no more short term storage. Producers were doing their best to ration storage. We had a similar thing happen with dairy products. Producers wanted to find a home, any place and you took what you could get to do so. The combination of government purchases, the reopening of businesses here and the refilling of the supply chains of the RH left us tight on fresh cheese. And that’s when prices went from $1/lb to $2.40/lb, and farm milk prices followed suit.
As restaurants have restocked, Wolf questions if the demand will remain constant. “Right now the question is are people going to go out to restaurants, and is this a demand that will be sustained? It’s one thing to open, and another to actually get people out to eat. If that doesn’t happen, then these prices really can’t stay where they are. We went from really low prices to high, so currently there’s more downside risk than upside potential in my opinion. You see some of the data regarding Covid-19 coming back from states that have reopened and where it’s now trending upward, especially in the south. I’m concerned that these prices in the short term reflect a shortage in fresh cheese, and when that need is filled the prices will drop. No one, at any level has ever dealt with anything like this before. It’s really hard to figure out what we need and where it’s all going. The current turmoil right now is just astounding.”
For Wolf, the dairy market’s future isn’t necessarily a dark one however. “We don’t have to maintain $20 milk to have a good year. $17 milk is fine. We have this habit of overshooting production when things look good, and if we can avoid that, I think it will level out. The Northeast has been one of the areas that has had the most turmoil, but to be fair the Northeast has also has taken covid-19 much more seriously than other regions.