The dairy industry has been on a roller coaster ride for years, and more recently with the pandemic due to the closure of food service. Class Three prices have rebounded since March, and Peter Vitaliano, chief economist with the National Milk Producers Federation (NMPF), says the rollercoaster has been driving cheese prices.
“Milk prices paid to dairy producer and the DMC margin have both followed the track of cheese prices very closely this year,” he said. “That’s because the other dairy products that influence milk prices have not been subject to nearly as much volatility as cheese.”
The feed cost components of the Dairy Margin Coverage (DMC) formula also haven’t been as volatile as cheese.
“Those feed cost components are driven by other agricultural sectors that have been subject to their own upheavals this year,” said Vitaliano.
Vitaliano added that one of the key takeaways of market disruptions to dairy has been what they can accomplish when they work together in a crisis—particularly governmental intervention with dairy product purchases and reducing production.
“Those actions collectively were able to have a very significant influence on raising milk prices in the marketplace, not to speak of the unprecedentedly large direct payments through CFAP,” he said.
With that volatility on cheese, Class Three milk has gone in a different direction than Class Four. That has presented more problems.
“We’ve magnificently solved a number of problems this year, but the situation has given rise to a bunch of new problems we need to look into in terms of our federal order pricing,” said Vitaliano.
Vitaliano anticipates average milk prices in 2020 will be on par with 2019s average price.