International dairy product markets to come under pressure throughout 2020

According to Rabobank, the upward trajectory in global dairy product prices, visible in the fourth quarter of 2019, has stalled since the New Year. Driving this downward trend is the onset of the coronavirus (Covid-19) epidemic in China

“Global dairy commodity prices have already priced-in the uncertainty,” said Michael Harvey, RaboResearch senior dairy analyst.

But a less-than-favourable expected finish to the New Zealand production season is providing some price support.

Rabobank anticipates China’s consumer buying patterns to normalise by the second half of 2020, with evidence of improvement in some supply chains already visible.

However, the risk of a setback or a delayed economic recovery in China presents a major downward price risk to Rabobank’s current forecasts.

Against this backdrop, global milk production is rising. The latest Rabobank figures confirm that all of the world’s main dairying regions will report year-on-year growth in the second quarter of 2020.

Down cycle

Harvey pointed out that the combination of reduced Chinese imports, significant supply chain disruptions, including extreme competition for shipping containers across the globe, and rising dairy surpluses in export regions will keep downward pressure on global markets through much of this year.

He added: “Nonetheless, the rate of growth in surplus milk will be restrained, and lower commodity prices in the face of weaker economic growth will support buyers in price-sensitive regions that are not dependent on oil revenue.

Based on the forecast fundamentals through 2020, this should lead to a down cycle in global dairy markets.

Commenting specifically on the potential global impact of coranavirus on world dairy markets, Harvey said that he is expecting weaker macroeconomic settings to kick in, including a global recession.

“So we then look closely at the broader dairy consumption impacts through retail, foodservice and industrial channels.

“There are positives signs on dairy consumption in retail, for example spikes in processed cheese, long-life milk etc. But we are expecting fairly weak foodservice demand for a period of at least two months.”

“However, we are also looking at a period of fairly modest supply growth in key export regions. But the net result is a projected down cycle in global pricing through much of 2020.”

He concluded: “The heightened level of uncertainty and risk leads to a chance that the bottom in global prices could be lower than we are forecasting and this may feed through to lower farmgate milk prices beyond current expectations.”