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Dairy Outlook: December 2020

Dairy Outlook: December 2020

By Robert C. Goodling and David L. Swartz

Milk markets continue to be a mix of highs and lows with trends looking to a lackluster performance for most of 2021.

Taking Control of the Markets
 
2020 is poised to end the year with a mix of highs and lows. Both PA and U.S. All Milk Price showed gains in October, and are potentially poised to finish near prices seen at the beginning of the year. Class III remains strong, but futures currently suggest a price correction at the beginning of 2021. Class IV remains low with a steady growth toward Class III throughout 2021. These factors suggest PA All Milk Price will average around $19/cwt for 2021 (Figure 1), potentially stressing cash flow for most dairy operations yet again.
 
Figure 1: Twenty-four month Actual and Predicted* Class III, Class IV, and Pennsylvania All Milk Price ($/cwt)
 
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*Predicted values based on Class III and Class IV futures regression (Goodling, 2020).
 
There are numerous uncertainties that will continue to plague milk markets in 2021 as many seek to regain control and return to a sense of normalcy. Despite commercial disappearance continuing strong trends, production has remained strong as well (Figure 2). Feed costs have continued to increase in October, and will also stress cash flows into the coming year. Many are ready to welcome 2021 with open arms despite these challenges. Dedicating time to evaluate the herds production costs and opportunities now will go far in helping make the most of the upcoming year.
 
Figure 2: Monthly U.S. Milk Production Commercial Disappearance
 
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USDA Economic Research Service and USDA National Agricultural Statistics Service, 2020.
 
Income Over Feed Cost, Margin, and All Milk Price Trends
 
Table 1: 12 month Pennsylvania and U.S. All Milk Income, Feed Cost, Income over Feed Cost ($/milk cow/day)
 
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¹Based on corn, alfalfa hay, and soybean meal equivalents to produce 75 lbs. of milk (Bailey & Ishler, 2007)
²The 3 year average actual IOFC breakeven in Pennsylvania from 2015-2017 was $9.00 ± $1.67 ($/milk cow/day) (Beck, Ishler, Goodling, 2018).
 
Table 2: 12 month Pennsylvania and U.S. All Milk Price, Feed Cost, Milk Margin ($/cwt for lactating cows)
 
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¹Based on corn, alfalfa hay, and soybean meal equivalents to produce 75 lbs. of milk (Bailey & Ishler, 2007)
²The 3 year average actual Milk Margin breakeven in Pennsylvania from 2015-2017 was $12.33 ± $2.29 ($/cwt) (Beck, Ishler, Goodling, 2018).
 
Figure 3: Twelve month Pennsylvania Milk Income and Income Over Feed Cost ($/milk cow/day)
 
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²The 3 year average actual IOFC breakeven in Pennsylvania from 2015-2017 was $9.00 ± $1.67 ($/milk cow/day) (Beck, Ishler, Goodling, 2018).
 
Table 3: Twenty-four month Actual and Predicted* Class III, Class IV, and Pennsylvania All Milk Price ($/cwt)
 
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*Italicized predicted values based on Class III and Class IV futures regression (Beck, Ishler, and Goodling 2018; Gould, 2019).
Source : psu.edu