Update Highlights

USDA 2021 milk price outlook gets a boost

The USDA reduced the 2021 milk production forecast and boosted projected milk prices slightly in its March World Ag Supply and Demand Estimates (WASDE) report. Estimated feed costs were unchanged. The report, released March 9, forecasts the 2021 all-milk price to average about 60 cents per hundredweight (cwt) less than 2020, with the decline coming from Class III milk.

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For 2021, the USDA cut the production forecast to 227.3 billion pounds, down 100 million pounds from last month’s estimate. In reducing expected milk production, the report indicated slower growth in milk output per cow will offset higher cow numbers. If realized, 2021 production would be up about 1.8% from 2020.

Estimated milk production for 2020 was revised to 223.2 billion pounds, up 100 million pounds from last month’s estimate and up almost 2.2% from 2019’s total of 218.4 billion pounds.

Compared to a month ago, projected 2021 cheese prices were unchanged, but price forecasts for butter, nonfat dry milk and dry whey all improved. As a result, the outlook for 2021 milk prices was mostly higher than last month’s forecast, although Class III and all-milk prices are still projected to be below averages seen in 2020.

The projected average all-milk price was raised 60 cents to $17.75 per cwt, the average Class III price was raised 15 cents to $16.75 per cwt, and the Class IV price was raised 75 cents to $14.45 per cwt.


The USDA 2021 price outlook was below current Class III and Class IV futures prices, which have strengthened recently. Using Chicago Mercantile Exchange (CME) futures prices at the close of trading on March 8, the 2021 Class III price would average about $17.66 per cwt, while the Class IV price would average about $15.63 per cwt.

The 2020 average all-milk price was $18.32 per cwt, the 2020 Class III price averaged $18.16 per cwt, while the average Class IV price was $13.49 per cwt.

  • Beef outlook: The 2021 beef production forecast was raised from the previous month primarily due to higher slaughter rates of non-fed cattle in the first half of the year. Projected cattle prices were unchanged from last month. The 2021 annual average price was forecast at $115 per cwt, up about $7 from the 2020 average.

Based on WASDE supply and demand estimates, feed supply and cost projections included:

  • Corn: This month’s 2020-21 U.S. corn supply, demand and price outlooks were unchanged. At $4.30 per bushel, the projected season-average corn price received by producers would be about 74 cents (21%) more than 2019-20.

  • Soybeans: This month’s 2020-21 U.S. soybean supply, demand and price outlooks were also unchanged. The U.S. season-average soybean price received by producers for 2020-21 was estimated at $11.15 per bushel, about $2.58 (30%) more than the 2019-20 average. The projected soybean meal price was estimated at $400 per ton, about $100 (34%) more than the 2019-20 average.

Upcoming USDA reports with potential to impact feed prices include the quarterly Grain Stocks report and the annual Prospective Plantings report, providing a first glimpse of crop acreage estimates for 2021. Both reports will be released on March 31.

February Class III-IV milk prices lower; PPDs announced March 11

Federal Milk Marketing Order (FMMO) Class III and Class IV milk prices declined in February. The February 2021 Class III milk price is $15.75 per cwt, down 29 cents from January 2021 and $1.25 less than February 2020.

At about $2.98 per pound in February, the value of milk protein in FMMO milk price calculations was about a nickel less than January. It was the lowest protein value since June 2020, when the impact of the USDA’s Farmers to Families Food Box cheese purchases kicked in.

Meanwhile, the February 2021 Class IV milk price is $13.19 per cwt, down 56 cents from January and $3.01 less than February 2020.

The February Class III-Class IV price gap increased about 27 cents from January to $2.56 per cwt. The February 2021 FMMO Class I base price was previously announced at $15.54 per cwt, meaning there is a Class I base-Class III milk price inversion (-27 cents) before Class I zone differentials are added.

What impact the Class III-IV gap and Class I-Class III inversion have on depooling and any potential negative producer price differentials (PPDs) will be released in FMMO administrator reports beginning on March 11.

Rabobank: Demand returning to dairy driver’s seat

The slowdown in milk production and a return of demand paint a brighter global picture in 2021, according to Ben Laine, dairy analyst with Rabobank. But while market disruptions affecting supply chains and consumption patterns were significant and abrupt in 2020, the rebuilding of demand this year will be more gradual.

“After a whole year of pandemic and lockdowns across the globe, the view of the future is clearer and more hopeful than it has been for months,” said Laine, writing in the RaboResearch Global Dairy Quarterly dairy newsletter. “By midyear, there should be a palpable return to familiar consumer patterns. It won’t be immediate, and certainly not smooth, but on balance, it should be positive for dairy markets.”

Compared to 2020, Rabobank forecasts a 1.1% increase in milk production in 2021 across the “Big 7” dairy-producing regions: The U.S., European Union, Brazil, Argentina, Uruguay, Australia and New Zealand. That’s slower than the 1.6% growth rate in 2020 and represents a modest tightening of supply, which should help support markets as demand settles into post-vaccine balance, Laine said.

“The impact of widespread vaccination should be felt by midyear, which will be positive for economic activity. There will still be a long tail to some aspects of the recovery. We might not be filling arenas or convention centers this year, but restrictions on restaurants are likely to be lifted, and holiday gatherings are less likely to be discouraged. This will positively impact dairy demand, particularly in markets like the U.S., where a greater volume of dairy is consumed through food service channels than through food prepared at home.”