As Higher Milk Production Forecasts Settle In, Can Export Demand Help Save Prices?
Dairy Report 062221
U.S. milk production continues to post gains, a trend that could continue to curb milk prices for producers this year.
USDA expects a rise in production in both 2021 and 2022, a factor driven by an uptick in cow numbers. As a result, the agency lowered the Class III and all-milk price forecast, yet expressed expectations for all classes of milk to see higher prices next year.
"For all these markets, I always worry when you have high feed costs, that producers get caught in this squeeze of higher costs, if their output prices move lower," says University of Missouri economist Scott Brown. "And the dairy industry certainly has that option of some lower prices as we get later in the year."
Brown says as U.S. dairy cow growth is happening at an accelerated pace, it could continue to be the theme in 2021.
"It's stronger than I would have hoped we were going to have, in terms of overall U.S. milk production growth this year, says Brown. "We're in a precarious situation on dairy markets, as well, as cheese prices have been coming off of what was some stronger prices. I think that was driven a little bit by where international prices were headed, as well as maybe some recovery from COVID-19."
USDA's latest forecast lowered cheese prices due to larger stocks, a trend that could be due to lower domestic demand this year. Brown says 2020 may be a high point for cheese demand, especially considering how many consumers switched to take out and home delivery options.
"Pizza demand was maybe the strongest as a take home and eat option in 2020," says Brown. "And it might be harder to repeat that in in 2021, we'll have to wait and see."
Between export demand and domestic demand, Brown thinks domestic demand may pose the greatest risk in 2021.
"On the dairy side right, I'm maybe a little more optimistic on the semantic demand and that we continue to get some growth out of the rest of the world," adds Brown. "In some ways, the U.S. is leading the COVID-19 recovery, and some other countries are coming behind us. As those countries continue to recover, that kind of pumps the demand for them. And we might get some of that market share in terms of cheese and other products."
USDA adjusted export demand for dairy- in both a fat basis and skim solid categories - higher in the latest production report.
