Global dairy markets – Rabobank update

By Jennie Tanner

The coronavirus pandemic has transformed the supply and demand landscape of global dairy markets. In light of this, Rabobank has revised its market outlook for the coming year, taking into account the impacts of the virus on production, trade and prices.

Markets are expected to see three distinct adjustment phases in the next year as follows:

• Wave One: panic buying where increased retail demand will partially offset the foodservice reduction
• Wave Two: stock building on the back of increased milk production in the northern hemisphere and lower overall demand. Reduced trade and higher product stocks will pressure prices, leading to price reductions at the farm gate
• Wave Three: a global recession which could keep dairy product prices and farmgate prices under pressure until 2021

As previously anticipated there have been issues with processing milk. Milk dumping, plant closures and force majeure have been reported in Europe and the US and in some countries, producers are being asked to cut production.

About 20% of total volume is sold through foodservice in Europe and therefore, the closure of foodservice outlets has had a massive effect on demand. Some larger companies have been able to reallocate milk to other products and put them into retail but smaller companies, especially those specialising in foodservice are under more pressure.

In the US, 45% of cheese is sold through foodservice and the reduction in demand there has already started eroding prices and led to some disposals of milk.

As stocks build and trade remains more difficult, lower prices are expected both at wholesale, and ultimately, farmgate level.  There are also some risks of higher production costs for farmers if supplies of feed supplements or crop protection products coming out of China are limited.

Trade is also expected to be hampered by logistical issues around container availability and border restrictions. Further impacting import demand will be the impact of lower economic growth in key import areas such as China and South America and the impact of lower oil prices on demand in the Middle East.

Overall, the challenges facing the industry now look set to have some long lasting impacts, with some prices as much as 30% below their pre-COVID-19 levels.

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