When the Pandemic Breaks Milk Prices: A Study in Returning to Normal

December 21, 2020

Key Points

• Cheese and milk prices have experienced extreme volatility in 2020, driven largely by supply chain disruptions, government purchasing, and changes in consumption habits during the COVID-19 pandemic.
• Record-high cheese prices lifted Class III milk prices disproportionately higher than Class IV milk prices, which were held in check by low butter and milk powder prices.
• Because of higher Class III milk prices, cheese manufacturers were incentivized to depool milk from Federal Milk Marketing Order (FMMO) marketing regions.
• This volatility and the widened price spreads between Class III and Class IV has meant lower milk checks for dairy farmers.
• The spread between Class III and IV milk prices is expected to realign in the first half of 2021 so long as government intervention does not persist, which will bring normalcy to Producer Price Differentials (PPDs) and mailbox milk prices.