by Eric Jenks, special to NEAFA
NEAFA recently had the chance to sit down with Ed Gallagher, President of Dairy Farmers of America’s Risk Management to discuss the potential for Northeast’s milk market for 2021. “Everything is seasonal and currently covid-19 related,” said Gallagher. “There are always ebbs and flows, and it’s different in one region of the US versus another. Milk production growth is pretty strong, it’s up about 3% so far. The challenge in the Northeast is that we have seen a net drop off in food service demand that’s been fairly significant. Schools and colleges being remote more often, restaurants not having as many customers, meetings and events not happening, etc., mean that all together that’s a significant loss of demand. The flip side is that sales at supermarkets have increased, but they haven’t made up for the food service losses. There are difficulties in the Northeast that you don’t see in other areas of the country. The winter is cold and snowy, versus in the southeast where it’s still warm enough that you could still have dining outdoors. So the Northeast is having trouble because production is growing at a time when milk use is dropping because of covid-19 related issues.”
Gallagher was optimistic however for the long term profitability of the northeastern dairy industry in 2021. “It’s definitely a challenging situation,” said Gallagher. “but as more and more people get vaccinated, consumer confidence to go out and open up their lives again and not be self-isolated is going to increase. I think it will start to happen by the summer, and we’ll see some of that lost demand come back. I think we could see higher education back in session, see meetings start to be scheduled again, and you’ll see that there’s a pent up demand for traveling. There’s going to be a surge that comes back to that food service area to balance things out. We’ll have to see where we are in the second half of the year, but I’m optimistic about it. I believe we’ll be in a much better spot in the summer than we are in the beginning of the year and in the winter.
Compared to previous downturns for the industry, Gallagher believes that dairies are in a better spot for 2021 compared to previous years to make it through any short term downturns. “Most dairies coming into 2021 are probably pretty ok financially,” said Gallagher. “The end of 2020 wasn’t a disaster for them, especially if they were enrolled in the dairy margin coverage or took part in the coronavirus food assistance program. They both provided a series of payments that were very significant. And milk prices in the end weren’t that bad in part because of the food box program operated by USDA. That really strongly influenced cheese prices which helped support milk prices. Taken altogether, dairies are rolling into 2021 in a good financial state.”
From the component side, Gallagher sees value in trying to increase the protein ratio of milk production. “Two years ago, and leading up to about a year ago starting around October 2019, butter fat value was significantly more worthwhile than protein value,” said Gallagher. “It was more than half the value of the product and then that changed. Now protein price is significantly more than butter fat. Cheese drives the protein price, and that has done well through the pandemic. While food service is down overall, quick serve fast food isn’t down. So we’re seeing really strong consumption of cheese from and the USDA food box program, which has helped purchase a lot of cheese that goes to food donation and distribution programs. Dairies might want to talk to their nutritionists and feed dealers to see if they can do something with their rations to produce a higher protein without losing a lot of butterfat. If they do that, then they can make more money. So net/net when I look at things, I’d say that for the first half of the year that dairies dealing with higher milk and higher feed price will likely break even, but the second half year; I think there will be a profit margin on average.”