CFAP Payments Will Add $1.40 to 2020 Milk Prices
With USDA announcing its Coronavirus Financial Assistance Program (CFAP) payments for April through the end of year last week, a National Milk Producer Federation (NMPF) economist projects the totaled payments will add $1.40 to $1.50/cwt to milk checks in 2020.
Smaller farms will receive this entire amount. Larger farms are of course subject to the $250,000 payment limits in each of the first and second round of CFAP payments.
Peter Vitaliano, NMPF chief economist and vice president of economic policy and market research, spoke today on the Dairy Signal podcast sponsored by the Professional Dairy Producers of Wisconsin.
He says milk prices themselves will average just under $18/cwt in 2020. But when you tack on the CFAP payments, the effective milk price will be more like $19.30 to $19.40/cwt. In 2019, U.S. all-milk prices averaged $18.60.
Looking forward into 2021, Vitaliano expects prices to average about $18.30. “Prices will not be as volatile in 2021 as they were this year, but that is a low bar,” he says. “There will be volatility because we are an industry prone to volatility. Because of the structure of the industry [with large farms dominating production], the price of milk will be near the cost of production.”
He notes that prior to the advent of COVID, the U.S. dairy industry was in expansion. Cow numbers were growing rapidly in the early part of the year. When COVID-19 hit and some dairy cooperatives instituted their base-excess programs, that growth was halted almost immediately. In two months, milk production went from +2.8% growth to -0.6% decline. “It took just two months to accomplish this supply shift what it took the previous 3-year price cycle to do. It shows supply management works,” he says.
But by August, with rising milk prices again driving some dairy farms to add cows, the industry is back in growth mode.