MADISON, Wis. — The pandemic has made markets unstable for milk prices. Dairy farmers in Wisconsin have endured ups and downs in prices this year as consumer spending habits have whipped around.
Markets steadily climbed to a five-year high for milk prices at the end of 2019. By April they had plummeted lower than they had been in a decade. The markets have jumped up and down, seeing milk reach high points before falling again and repeating.
The unstable markets, make things difficult for dairy farmers.
“It puts a tremendous strain on dairy farmer's business,” said Mark Stephenson, Director of Dairy Policy Analysis at UW-Madison.
Stephenson said when the pandemic started a rush of buying at grocery stores created a huge surge in dairy sales through retail. He said dairy sales at grocery stores were up 30 percent in April. At the same time a collapse in sales through restaurants and schools created a scramble on the market — forcing some dairies to dump milk.
Stephenson said the market for dairy remained uncertain. Restaurants would open back up, make large orders, then be forced to close down again. Schools in the fall have seen a similar pattern.
“So milk prices have been bouncing around a lot, and we also are still finding that we aren't at some kind of stable equilibrium,” Stephenson said.
This has made things difficult for farm managers.
“From the beginning of January until now it's really jut kind of roller coastering,” said Katie Schultz, part owner of Tri Fecta Farms in Fox Lake, WI and board president of the Professional Dairy Producers of Wisconsin. “There's been a lot of tighter shifts lately, so there's been a lot more of the up and down, in a shorter window of time than we're used to.”
Professional Dairy Producers of Wisconsin (PDPW) has a financial literacy program that helps dairy farmers know the numbers on their farm. Schultz said unstable markets make it even more important to track every single finance on the farm.
“For those individuals that don't have those numbers at their discretion are just really struggling to be able to make those business decisions on when to book some of their commodities and at what price do they need to have some milk locked in at in order to just survive,” Schultz said.
For Schultz and her family's farm, navigating the up and down milk prices has meant cutting costs at every place they can.
“We just take a look at how can we minimize our risk,” Schultz said.
Stephenson said every dairy farmer should be looking to manage their risk right now. He says with no long-term clarity on prices, farmers need to be ready for the worst.
“I think that people are just going to have to remain vigilant about these markets, I think they're incredibly difficult to forecast,” Stephenson said.
Stephenson said many farmers didn't sign up for safety nets like the Diary Margin Program in 2019 because prices in 2020 were projected to rise. He said taking a look at programs like that for 2020 — which enrollment started this week on — would be a smart decision.
“Producers should really get in there and think about risk management this next year,” Stephenson said. “I think a pandemic is the very definition of risk and that's what you're trying to protect against.”
Stephenson said even with the instability, the average milk price in 2020 could still be higher than previous years. Though futures markets show prices falling low again by the end of the year, and Stephenson worries they could fall more in the Spring.
Stephenson said government emergency federal aid programs have helped a lot of farmers through this year.
He said programs that focused on buying agricultural products to donate to food banks made an impact as well. Like in the Spring when cheese prices went from drastic lows to drastic highs.
“The Farm to Family Food Boxes bought a lot of cheese and dairy products,” Stephenson said. “That was a new demand that we hadn't seen before and the scramble to find fresh cheese for those actually moved cheese prices up over $3 a pound. So it went from $1 a pound to $3 a pound in about a six week time period.”
Stephenson said an average benchmark for profitability for farmers on milk prices is about $17/cwt. He said farms have a wide variety of levels where they will be profitable, but most should be at least just keeping above water at that cost. The marketed milk price has jumped across that line frequently — five times in August alone. However, Stephenson said it's not as if farmers see that change week over week.
“Cash flow is a difficult thing,” Stephenson said. “You really kind of have to look at over the course of a year am I getting on average a big enough milk price to cover on average the cost that I have to produce that milk.”
The thing that makes these markets most difficult is planning ahead. Stephenson said he talks to some processors who aren't even trying to do projections for next year. He said they currently see “long-term” projections as six weeks out.
This makes things difficult for planning business operations. Even with the optimism some farmers have.
“The farmer is the eternal optimist,” Schultz said. “We always think it's going to get better, we always think the prices are going to go up. fortunately that's what probably keeps us going through times that most people would say 'why in the world are you still in business if you're losing money?'”
Schultz said she's hoping for normalcy in the markets and industry — even if we don't know what that will look like.
“What that new normal looks like we're not sure of, but any type of stability is what we're looking for,” Schultz said.
Stephenson said markets won't be normal until coronavirus is under control. Right now things are too unstable with restaurant, school and hospitality dairy purchases.
“It's not under control at this point in time. Until it's really under control I don't think the markets to settle,” Stephenson said.
Stephenson said the industry has done a remarkable job at adjusting to pandemic-created uncertainties. He said the industry has never seen anything quite like this pandemic.
“Right now this is just unscripted,” Stephenson said. “We don't know what the COVID playbook, or a pandemic playbook, really looks like and markets are trying to figure it out.”
There was some good news for farmers recently, the latest Gallup Poll showed public views hold farming at the highest positivity rate of any profession.
“I think that really meant a lot this year to my fellow dairy farmers, and crop farmers across the United States to feel appreciated,” Schultz said.