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November 20, 2019

2020 Dairy Outlook: ‘Somewhat better than 2019’

 |  By: Jim Dickrell

University of Wisconsin dairy economists Bob Cropp and Mark Stephenson are looking for better times ahead.

“Next year is likely to be somewhat better than 2019,” says Stephenson.

Cropp goes even further: “Things look a lot rosier for 2020 than we have seen in the last 4 to 4 ½ years,” he says.

Cropp expects milk prices to average $2.20/cwt higher this year than last, and he expects prices to be another $1 to 1.20/cwt higher in 2020. Stephenson is even more optimistic than that.

The reasons, however, are built on some of the pain dairy farmers have suffered over the past few years. Few farms have rebuilt their balance sheets, and so most are still suffering financial stress. That means expansions will be few and far between.

Feed quality and quantity are also suspect. Stephenson surveyed dairy Extension specialists across Wisconsin in the last few weeks, and none reported forage to be overly abundant or of high quality. Most alfalfa and corn silage is being reported, at best, as adequate. Similar conditions exist in the Northeast United States, says Cropp.

The good news buoying prices are strong domestic demand for dairy products and continued growth in dairy exports. Cheese and nonfat dry milk exports surged in September (the last month of available data), and all indications are export strength with continue. There also appears to be some good news on the trade agreement front, with passage of a Japanese agreement and hopeful signs of lessened tensions with China.

Bottomline: Cropp expects $17/cwt Class III prices in the first half of the year and $18 in the second half.

The elephant in the room, however, is the Dean Foods bankruptcy. Stephenson notes that Dean controls at least a third of fluid milk sales, and close to 10% of total milk sales. “The Dean bankruptcy is going to be a big thing,” he says. But most farmers will not feel the effects.

Cropp agrees. “I don’t think there is a danger that farmers won’t get paid [for their milk],” he says.

Major dairy states typically have agricultural security bonding that protects, at least to some degree, farmers milk checks.

“The worst-case scenario is if some of the Dean plants get closed because they are not well located or are old plants,” says Stephenson. There will still be a market for the milk that supplies those plants, but farmers could see increased hauling costs to get that milk processed at new locations, he says.

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