Milk-Price Drops to Cost Dairy Billions in Lost Revenue as Coronavirus Bites
March 31, 2020
Dairy futures markets became significantly more volatile in March as they struggled to estimate the coronavirus pandemic’s impact on the dairy industry. But broader certainties are clear: The effects will be negative, and they will be large.
Markets in early March indicated the U.S. all-milk price would average about $18.50 per cwt. during 2020, just below the 2019 average of $18.60 per cwt. Since then, the futures-based 2020 average price estimate dropped sharply, rebounded a bit, then resumed dropping, to about $17.20/cwt. on March 26.
The USDA DMC Decision Tool, which can be accessed online, has followed a similar trajectory. By March 25, it was projecting that the program would make payments for margin coverage at $9.50 per cwt every month from March through the end of 2020, as shown in the chart below, with payments averaging $0.73/cwt., before premium payments, for the entire year.
The dramatically shifting outlook means a radically different margin situation than what producers anticipated last December, the deadline for farmer signup for the 2020 DMC program. USDA forecasters then expected monthly margins to remain above $10.00/cwt. during all months of 2020, which translated to no payments at any level of coverage.
The rosier outlook discouraged signups. Only 47.8 percent of operations with established DMC production histories are signed up for the 2020 DMC, in contrast to the 82.3 percent of operations with established production histories that signed up for the program for 2019, a year of significant payments. That discrepancy in turn has become a driver of NMPF efforts to aid producers — in its March 24 letter to Agriculture Secretary Sonny Perdue, NMPF requested reopened enrollment for this year’s program, a measure made appropriate by the unprecedented nature of the coronavirus situation.
The DMC information page on NMPF’s website offers a variety of educational resources to help farmers make better use of the program.
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