Coronavirus Outbreak Takes A Toll On Recovering Milk Prices

Wisconsin dairy farmers and other producers are feeling the impact of trade uncertainty caused by the coronavirus outbreak.

The respiratory illness has killed hundreds of people in China and prompted the United States to temporarily suspend the entry of travelers arriving from China, or people who have recently been to China, if they are not U.S. citizens.

Mark Stephenson, director of dairy policy analysis at the University of Wisconsin-Madison, said milk futures prices dropped dramatically last week as the number of coronavirus cases continued to grow.

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He said the market reaction comes from concerns about how widespread the outbreak will become and what impact it will have on dairy exports.

“It’s a pretty big concern when you’ve got the world’s largest importer of dairy products with obviously such a problem as the coronavirus appears to be,” Stephenson said.

Stephenson said the U.S. and other major milk producers like New Zealand and the European Union sell dairy products to China. And if China stops importing as much, those products will flood the market.

That uncertainty has taken the biggest toll on milk prices. But Stephenson said there are other factors that could slow down exports.

“You may find that it’s just hard to get products into the country and to move them through a country. We do see a number of other stores, higher profile stores that are closing down and just not open for business,” Stephenson said. “People are being asked to shelter in the communities in which they’ve had the coronavirus outbreak and just not travel, not meet. So if you’re not doing that, it’s going to be a lot harder to sell dairy products.”

He said other commodities markets have also reacted to the coronavirus outbreak, from pork to soybeans.

Steven Deller, agricultural and applied economics professor at UW-Madison, said that widespread market uncertainty carries even bigger concerns.

“There are things that happen, like the coronavirus, that are completely unpredictable and that can actually tip the economy,” Deller said. “The U.S. economy is looking pretty good, but we have problems with some of our trading partners.”

Deller said many European economies are on the verge of a recession. Combined with the United Kingdom’s exit from the European Union and the unknown economic impacts of the coronavirus in China, many trade relations remain uncertain.

“Is that going to spill over and affect the U.S. economy? That’s a very real possibility,” Deller said. “Because we’re only growing at like 2.5 percent, it doesn’t take very much to us to kind of flip into a mild recession.”

Stephenson agrees. And he said that uncertainty could also shape the way Wisconsin dairy farmers continue to recover after five years of low milk prices.

He said milk prices started to improve at the end of 2019 as production slowed down and stocks of dairy products were reduced in the U.S.

“We were anticipating that this would imply some price improvements here as we got to spring. But in fact, the markets have been looking for some additional direction,” Stephenson said. “I think the next piece of information the markets were looking for is just how heavy milk production is going to be. That would probably be next triggered by information we had about the spring flush of milk which in my opinion, was likely to be light primarily because of lack of forage quality and lack of forage quantities on many farms.”

Milk production naturally increases in the spring, creating what’s known as a “spring flush” in the market. But cows aren’t able to produce as much milk when feed quality is reduced. Last year’s weather challenges throughout the growing season impacted the quality of forages like alfalfa and reduced the harvest for some farmers.

Stephenson said it’s unclear how long it will take for milk markets to absorb the impact of the coronavirus before returning to normal.