August 4, 2020

Milk Price Support Likely to Continue Through Election

 |  By: Anna-Lisa Laca

The spring and summer 2020 milk markets have created volatility farmers won’t soon forget. COVID-19, government intervention, the upcoming election and surprisingly strong export markets have sent prices swinging from one extreme to the other. 

While it has created negative Producer Price Differentials (PPDs) which lower the farmgate milk price, the bigger risk is in the lesson farmers might learn from a historic level of government intervention, says Marin Bozic an economist at the University of Minnesota. 

Despite the potential for another wave of COVID-19 to knock the supply chain out of balance again, or the possibilities that world markets could make exports tank, Bozic told AgriTalk Host Chip Flory, his biggest fear isn’t what happens to the market but instead the potential for farmers get lazy in their risk management approach by expecting government intervention. 

“My biggest fear is what kind of lessons people learn from it,” he said. “It’s dangerous to learn the lesson that you don't have to hedge or worry about risk because Uncle Sam is going to come in and scoop up all the surplus cheese.”

That mentality will only work until the election passes, he adds. 

“Until November, I would say that I would be surprised if the if the government does not do a lot to support ag economy,” he said. “We have to keep in mind that, Wisconsin, Michigan, Pennsylvania were the three swing states that delivered the republican presidency in 2016.”

Even though presidential race polls are currently wide, Bozic expects them to tighten as fall arrives. 

“Any president would try to maximize the odds of re-election and that is happening right now as well,” he says. “Besides, you really don't want the U.S. population to be hungry and food banks be empty, because if you thought that June riots were something, wait until you see what kind of riots hungry people can make.”