Are Dairy Markets On Just A Dead Cat Bounce?
The recent, across-the-board surge in dairy markets are welcome news to beleaguered dairy farmers ravaged by the COVID-19 pandemic.
But don’t expect or count on this market strength to last, say University of Wisconsin dairy economists Bob Cropp and Mark Stephenson.
“Is this real? Or, as Wall Street says, is it a dead cat bounce?” asks Stephenson.
“If I were a dairy producer, I’d be cautiously looking at Class III prices and then look at locking in prices with Dairy Revenue Protection insurance or forward pricing or puts,” responds Cropp. “I’d be very cautious that these prices will hold on the futures market.”
While dairy production slowed in April with an increase of just 1.4 percent, restaurant and institutional demand is only slowly beginning to rebound. It’s certainly not enough to sustain these high milk prices through the summer and fall, he says.
“I don’t see anything on the demand side, even with restaurants slowly opening, for prices to stay there,” Cropp says.
Stephenson points out that unemployment is currently at 15 percent, and it is expected to go higher. “We are way above where we were with unemployment in the depths of Great Recession in 2009. Then, unemployment reached 10%, and we will likely have it in the 20s this summer and fall.
“From what I read, we’ll be lucky to be at 13% unemployment by the end of 2021. I think this is going to have a big impact,” he says.
Both economists agree last week’s announcement of government aid to dairy farmers, through the Coronavirus Food Assistance Program (CFAP), will help. “This will be a big infusion of cash to dairy farmers, but it will hardly make them whole,” says Stephenson.
Both economists believe the United States Department of Agriculture’s projections of a $13.35 Class III and a $14.45 All-Milk for 2020 are too low. But they also say the economy and dairy farmers face a lot of uncertainty for the rest of the year.
That is why they urge dairy farmers to lock in the higher prices now. Take advantage of that dead cat bounce if you can.
You can listen to their entire podcast here.