Dairy hopes for sales growth in 2021

Feb 12, 2021  | 3 min  | Ep4626

The demand for dairy shifted dramatically in spring of 2020.

Once schools closed for the term, consumer demand shifted towards home. Eventually products were re-routed - but it was USDA’s food assistance programs that provided a shot in the arm for farmers and, more specifically, dairy producers.

Peter Tubbs looks at what might be ahead for producers in 2021 is our Cover Story.

The dairy market, notorious for volatility, saw wild price swings in 2020, and much is unknown about the potential for profit in 2021.
The dairy industry as a whole responded quickly to market disruptions caused by the closing of restaurants and schools in March of last year.
Nicole Widmar, Department of Agricultural Economics, Purdue University: “So that transition period was particularly, uh, troubling, right? You can't flip a switch and immediately take all of the processing of milk for school lunches and turn it into gallons for people to take home…. people kind of changed nutrition. They made some decisions about culling and you saw milk production per cow go down.”
 
That reduction in production drove milk prices upward a few months later, reaching highs unseen since 2014. But slow sales to restaurants and schools remain a drag on the industry forcing wholesale prices back below $20 per hundredweight. 
Widmar believes the pace of COVID-19 vaccination will be a major influence on dairy prices throughout 2021.
Nicole Widmar, Department of Agricultural Economics, Purdue University: “And then the big question, that's every market, uh, you know, what's normal. When do we return to normal? Is there a normal, uh, and how does that pertain to how we spend money, eat out, et cetera, on the, on the negative side? So downward pressure in the dairy markets, uh, it's a recession. That's not just US-based, right?” 
 
The global economic recovery will also determine how much of the United States dairy surplus will find a home abroad. Exports have risen in recent years, and the industry looks to maintain that momentum.
Part of the surplus is a result of the growth in domestic dairy production, which rose 3 percent in 2020, despite some farms reducing output to adjust to supply chain bottlenecks.
Nicole Widmar, Department of Agricultural Economics, Purdue University: “Year in, year out, we need a little bit of production growth to kind of keep up with changes in consumption, right? So we changed the products that we eat, uh, as in terms of the product mix. But in general, we need something between, what, 1.5 and 2, probably, percent of annual growth, just to kind of keep up with the growth and demand.”
 
An increase in feed costs may hurt margins, as higher grain prices appear to be a constant factor in the equation through this coming summer. The tight margins can be difficult for small and medium size dairies to manage. Many producers who also raise crops have to decide on whether to feed or sell their grain from the 2020 growing season.
Nicole Widmar, Department of Agricultural Economics, Purdue University: “12.49  We're seeing people add some cow numbers and those things don't reverse super quickly. So I would expect, yeah, you're going to have increase in milk production. And my big question mark is, one, is can, you know, how much demand are you going to have within the country in terms of restaurant and at home? The other big one is what about export markets? What's the rest of the world going to do? Are we going to have product that's competitive to sell? And what are the recoveries and other places look like so that people are actually demanding those products.”
 
For Market to Market, I’m Peter Tubbs
 
 
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