Markets bounce back as demand starts to return

Thursday, 25 June 2020

By Patty Clayton

Recent months have seen large movements in market values for dairy products. The closure, and subsequent reopening of many hospitality businesses severely disrupted demand in dairy supply chains. Significant drops in dairy product prices occurred in April, followed by a strong recovery in May, altering expectations for the remainder of the year. 

While some headwinds remain in terms of demand recovery over the next year, the short term outlook for dairy markets has improved. Government support programmes in both the EU and US, to help take product off the market, along with growing concerns over product supplies later in the year, have combined to support dairy markets.

Looking just at EU markets, both Rabobank’s latest price forecasts and settled values on EEX futures contracts reflect how expectations for the market value of milk have improved from last month.

The second quarter average is now showing less of a drop than it was last month, showing the impact of the return of demand as supply chains restock.

In the second half of the year, all three sources show a quicker recovery in product values than previously expected, approaching pre-Covid levels by the end of 2020. The support to forward pricing is likely due to worries around future milk supplies and availability of product. While stocks of SMP in the EU have grown, most dairy product stocks do not appear to be excessive.

It is worth repeating, however, that global demand is expected to remain compromised by the predicted economic downturn. With global milk supplies forecast to grow by around 1%, this will inevitably lead to some stock build-up, keeping prices under pressure.

Patty Clayton

Lead Analyst - Dairy

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