Cows in parlor holding area.
June 16, 2020

‘The Last Thing We Need Is More Milk’

 |  By: Jim Dickrell

The dairy industry’s V-shaped market recovery since the onset of the COVID-19 pandemic is the result of a number of factors.

Not the least of which were cooperative base plans that required dairy farmers to reduce the amount of milk they shipped to market, says Jim Mulhern, CEO and president of the National Milk Producers Federation. Mulhern spoke on today’s Dairy Signal webinar, hosted by the Professional Dairy Producers of Wisconsin.

“Co-op base plans did help reduce supply,” he says. At the beginning of the year, it looked like the industry was starting to enter another cycle of herd expansion.

“The co-op base plans helped turn that around, and that created a pause in the herd expansion cycle,” he says.

“For the year, we’re hoping to see no more than a one percent increase in growth in milk production this year,” he says. “The last thing we should do, the worst thing, is an increase in milk production.”

Mark Stephenson, a dairy economist with the University of Wisconsin, who also spoke on the webinar, worries that $20 Class III prices are a signal that the market wants more milk. Heifer replacement prices in the West have surged dramatically in recent weeks, and are currently much higher than other areas of the country. That’s a signal that producers in the West are gearing up to take advantage of higher Class III and IV prices, he says.

Stephenson notes that the industry is also holding higher than normal levels of dairy products in inventory. Those products could come back into marketing channels as dairy prices surge, which could dampen prices longer term.

He notes that a combination of Dairy Revenue Protection insurance, Dairy Margin Coverage (DMC) insurance and government payments have provided a quarter’s worth of good prices. If dairy producers signed up for DMC at the $9.50/cwt level, it will provide a payment of just under $3.50/cwt for April and $4/cwt for May. Averaged over the entire year, it will add about 66₵/cwt for herds with less than 5 million pounds of production history.

The Coronavirus Financial Assistance Program (CFAP) will provide $6.20/cwt for milk in the first quarter. Averaged over all milk over the entire year, it will add $1.55/cwt for the year.

Without these two programs, the outlook for 2020 would be much bleaker. Right now, analysts are projecting $18 to $19/cwt all-milk for 2020. “Don’t kill the golden goose by increasing milk production too fast,” says Mulhern.

You can listen to the entire, hour-long Dairy Signal podcast with Mulhern and Stephenson here.