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COVID-19 impacts on Canadian dairy

COVID-19 has rocked the dairy market in unexpected ways since the publication of our 2020 Dairy Outlook. We project lower profitability for dairy producers due to decline in demand. 
 
Margins were strong in the first two-and-a-half months of 2020, but the outlook is negative in the second quarter. We expect demand to recover in the third quarter under a gradual re-opening of food services. It will take months for the industry to work through butter stocks, limiting the potential for revenues to increase. 
 
Production-limiting measures will support prices. We forecast average revenue in the P5 to decline by 0.91 $/hl in 2020 compared to 2019 (Table 1). In the Western Milk Pool (WMP), we expect a more moderate revenue decline of 0.11 $/hl. 
 
Grain prices are also projected lower in 2020 compared to 2019. In the P5, we forecast total costs to dairy farms to decline by 0.44 $/hl. However, in the WMP, we forecast costs to increase by 0.62 $/hl. In net, margins will decline in 2020 in the two regions.
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