Dairy producers had a good year in 2020 despite early COVID hiccups and milk prices are expected to rise this year
Dairy farmers should face a much less dramatic 2021 than what they experienced in 2020, Farm Credit Canada reports.
And in the end, 2020 didn’t end up too badly for most.
“2021 will be a year of adjustments, but hopefully less volatile than 2020,” said FCC in a January commentary.
“Although the pandemic forced temporary production cut measures, 2020 milk production exceeded 2019.”
Dairy farmers were rocked by violent shifts in demand during the early months of the pandemic, with early hoarding by consumers being replaced by processor slowdowns as restaurants and institutions shut down and cancelled orders.
Milk had to be dumped until the processing industry retooled its plants to focus on consumer-oriented dairy products.
Once that happened, the dairy industry found a boom in demand for many home-cooking dairy products.
According to Dairy Farmers of Canada, retail sales of butter rose 12.4 percent in 2020.
In the U.S., by the fourth quarter of 2020, butter consumption was up six percent and set to see the biggest sales since 1943.
That caps a longer term trend in which Americans are consuming more butter per capita than during the 1980s and 1990s.
That decline had followed the massive growth of margarine and the association of butter and other dairy products with health conditions.
However, with those health concerns being much-reduced by fresher research and butter becoming relatively cheaper for the consumer over time, butter demand reversed its decline.
So too has whole milk demand in the U.S. soared, as its sales have now outpaced two-percent milk and as skim milk sales have fallen.
FCC is expecting milk prices to increase in 2021 because the Canadian Dairy Commission is boosting the butter support price from Feb. 1, the food service industry should recover in the second half of 2021, and the U.S. market remains strong.
FCC expects western Canadian revenues to rise by 86 cents per hectolitre and eastern prices by $1.80 per hl.
Some wildcard factors are playing out in the industry today, including the restrictions on Canadian exports of dairy products due to the Canada-European Union trade deal and the Canada-United States-Mexico trade deal.
While the restrictions aren’t good for processor demand from farmers, it might not be as bad as feared.
“Anecodotal evidence suggests that the industry has been finding ways to add value to non-fat solids in Canada, diminishing the impact of the export quota,” said FCC.
Particularly important for the positive outlook on demand is the expected revival of the food service sector.
“Restaurants are important buyers of cream and cheese, and their reopening will boost demand for dairy products,” said FCC.
“The pent-up demand for food away from home could help trigger a significant rebound. After months of closures, consumers are longing to return to restaurants. Canadian households’ savings rate jumped.”
But with many restaurants staggering through lockdowns and grave financial challenges, the size of the restaurant demand post-pandemic won’t be easy to assess for months.
For farmers’ margins, the recent bull market in crop prices has been a negative for livestock industries such as dairy.
In both Canada and the U.S., analysts will be closely watching to see if the boom in retail sales of butter and higher-fat milk continues post-pandemic. For all the disruptions in the spring, the resurgence of at-home demand for dairy was a surprisingly pleasant development for dairy farmers.