WOOSTER, Ohio— The Coronavirus has turned the world upside down, wreaking havoc on the health and economy worldwide, and impact on the dairy industry in particular. 

Before the virus began spreading across the globe, about half of the cheese sold in the United States was consumed outside the home in restaurants, take-out sales and institutions, according to Dr. Mark Stephanson, Extension Dairy Policy Specialist and Director of the University of Wisconsin-Madison Extension and Center for Dairy Profitability. Stephenson was a presenter in a webinar hosted by the University of Wisconsin-Madison’s College of Agriculture and Life Sciences, Department of Extension and Nutrient Pest Management program.

Stephenson said that sales of American Processed Cheese which is sold on burgers or served on a plate of nachos dropped almost immediately as restaurants closed due to social distancing. At the same time, pizza sales are mostly take-out and reports show that those sales have surged. Total cheese sales are up at the retail level as consumers are buying cheese in the grocery store to take it home, but it is down at foodservice and institutions, so there is a net loss in cheese sales of five to ten percent. “

Cheese plants aren’t taking any more milk than they need and milk is moving to meet consumer demand, according to Stephenson.

“About two-thirds of fluid milk is consumed in the home,” he said. “Those sales are up and we are seeing some empty shelves and limits on purchases, which reverses a long-standing trend of less consumption of beverage milk. But foodservice and institution sales still account for the other third of fluid milk sales and those sales are way down. So the total fluid milk consumption is a negative five to ten percent.”

Butter sales have also seen a decline, according to Stephenson, as more than half of the butter is consumed outside the home in restaurants and institutional settings. Butter sales are up in retail but not enough to offset the decline in out of home use. Butter sales are down by ten to twenty percent.

“If you look at all of these products, we are clearly down in demand for dairy products,” he said. “But at the same time demand was declining, we were beginning to build up milk production by 1. 7 percent and cow numbers were up as well.” 

Excess milk production is keeping a lid on milk prices, according to Stephenson.  Also, there is adequate storage of dairy products so buyers aren’t rushing to buy products until they need them. 

Another challenge, according to Stephenson, is the disruption in the export market with orders down in several countries due to the Coronavirus. Mexico and Canada are also dealing with Coronavirus issues so that has had an impact on demand for dairy products from those countries. 

Service at ports has been shut down so ships aren’t being loaded out to move the product overseas. 

Finally, the disruption in the supply chains in a variety of industries could lead to a tailspin into a worldwide recession, presenting a new set of problems for dairy demand and export sales fell.

The prices on the Chicago Mercantile Exchange have seen a $5 to $6 decline in May futures from price projections in mid-January as export sales were disrupted beginning in January due to the Coronavirus outbreak in China. 

Looking at the Dairy Margin Coverage levels, during the December sign-up period, projections for 2020 were for margins at $10 or above. We could see margins to fall below $6  during the May and June period. 

“The good news is that corn prices have fallen as well but not by enough to offset milk prices,” he said. 

“We have several other concerns in the dairy industry,” he said. “It is bad enough for any farm operator or labor on the farm to contract the virus. That can disrupt the activities on the farm, but it could be worse if it happens further downstream with milk haulers or processors. “

But Stephenson doesn’t see Coronavirus impacting processors due to their hypervigilant sanitation practices, so the plants probably wouldn’t close. However, if it is a key employee such as lab or testing personnel it might slow down normal operations.

“We have seen some cooperatives and dairy plants who have sent out letters to their patrons asking for a voluntary reduction in milk production,” he said. “If you look at the collapsed demand and relatively big milk supply across the country, we need to reduce milk supply. That is the only way out of this. We can’t just buy the product and stick it in cold storage, there is just too much.”

Some of these co-ops have also reminded members that they have supply management protocols in place which could be invoked. Milk is being dumped in some areas, according to reports. There is also milk that is not dumped but it is being sold at distressed prices. In this case, milk is being sold at less than minimum milk price levels, but processors might take an extra load if the price is right. 

All in all, Stephenson projects that  2020 to be another brutal year and possibly the lowest prices in the last five years. But there are some things producers should do.

“Meet with your banker to discuss whether you will need additional credit or restructure your loans,” he said. “Some farms may want to ask themselves whether this is time to exit the industry on their terms, and milk prices will decline enough to operate barns at below capacity.”

Stephenson said producers may also want to consider their feeding strategy and not push production as hard, to lower purchased feed costs to reduce the milk supply and help prices recover. 

“We could see some help at the federal level,” said Stephenson. “The CARES Act was passed and signed into law with about 2.2 trillion dollars, some of it was identified for agriculture.”

Stephenson said of the money set aside for agriculture, 14 billion would go to CCC replenishment to cover deficit spending on the market facilitation payments in 2019. There is also 9.5 billion that the Secretary of Agriculture can use to help agriculture, including the dairy industry. 15.8 billion dollars was set aside for the Supplemental Nutrition Assistance Program which can be helpful to people who are food insecure as well as keeping food lines moving toward people in need.   

Another component of the CARES Act was the 350 billion dollars made available from Small Business Administration and through Farm Credit. It is available to farmers and if they maintain employees, there is the possibility of zero interest and loan forgiveness. Agriculture was deemed as an essential industry, so transportation will keep food moving from farms to consumers.

National Milk Producers Federation along with the IDFA, the dairy processors association asked for several things to assist producers and could see those requests implemented by the USDA.