Volatility road sign.
May 14, 2020

Milk Markets Show Strength, But Risk Remains High

 |  By: Jim Dickrell

Class III milk markets were limit up a couple of days this week, and some contracts are within a few percentage points of where they were January 1. “We are seeing some rapid recovery on the upside of markets, and we have a lot to be thankful for,” says Dan Basse, president of AgResources Company based in Chicago, Ill.

Basse spoke today at the Professional Dairy Producers of Wisconsin’s Dairy Signal webinar, which is being offered three times each week during the pandemic. Basse also warned, however, that the economy is far from out of the woods due to the COVID-19 pandemic and that the recovery could be lengthy.

If there is a second or third or fourth wave of COVID infections, think what impact that could have on markets, Basse warned listeners. He urges farmers to take to heart the lessons learned when the first wave of COVID shuttered vast segments of the economy this spring. “As you think about the milk markets, take some risk off the table,” he says.

He also notes that some 36 million American workers have filed for unemployment. He believes the jobless rate will not peak until July, and then it will take some time for the economy to recover and bring those workers back on-line.

But there is good news moving into summer. Restaurants are starting to re-open, and Basse expects them to be at 40 to 50 percent capacity by mid-June. That’s important for dairy, because more than half of dairy products are normally consumed through food service.

There are other bright spots in the ag economy, most notably on the feed side. USDA is projecting the largest carry-over of corn at the end of the cropping season in 33 years. USDA is projecting 4 billion bushels of ending stocks this fall. That means CME prices for corn in the $2.50 to $2.70/bu range, and prices at country elevators at $2 to $2.20/bu. “There is no reason to be buying corn [for future needs] as it stands now,” he says. “And there is no concern about buying soybean meal.”

Another factor adding to the corn inventory is reduced corn use through ethanol. While some ethanol plants are coming back on-line as Americans start driving again, demand for gas and ethanol is likely to be down 20% through the end of the year, he says.

The other good news is that U.S. dairy exports, at least through the first quarter, have shown strength and were at their highest levels in the last three years. The balance of dairy trade—exports minus imports—was close to $300 million in March.

You can listen to Basse’s entire hour-long webinar here.