Reduced Chinese imports, significant supply chain disruptions (including extreme competition for shipping containers across the globe) and rising dairy production in export regions, will keep downward pressure on global dairy markets through much of 2020, warned market analysts at Rabobank this week.
“But a less-than-favourable expected finish to the New Zealand production season is providing some price support,” said Michael Harvey, RaboResearch Senior Dairy Analyst. New Zealand’s annual dairy export revenue has been revised downwards by €211 million, mainly due to hot and dry farm conditions.
Rabobank anticipates China’s consumer buying patterns to normalise in the second half of 2020, with evidence of improvement in some supply chains already visible, despite a record Covid-19 setback for the Chinese economy.
According to Rabobank, the risk of a setback, or a delayed economic recovery, in China, presents a major downward price risk in its global dairy market forecast.
It says global milk production from the “Big 7” is rising, but from a relatively low base, and the rise will be restrained.
Lower dairy commodity prices will support buyers in price-sensitive regions that are not dependent on oil revenue, which has slumped.
Nevertheless, the upward trajectory in global dairy product prices late in 2019 has stalled, according to the latest RaboResearch Dairy Quarterly, which is titled “The Corona Hangover”.
Its conclusions were somewhat confirmed in Tuesday’s Global Dairy Trade auction, where the price index fell 3.9%. The price for skim milk powder, the EU’s most traded product, fell 8.1%.
The oil price collapse and the threat of global recession are also causes for concern.
EU skim and butter prices fell since the Coronavirus outbreak emerged.
This may partly be due to the 25% retaliatory tariff by the Trump administration in the US on a variety of food, alcohol, and consumer products from the EU, which has already cost US importers more than $358 million in increased duties.
However, Dairy Industry Ireland says there has been a significant increase in milk and dairy demand in all EU member states in recent days, as Covid-19 restriction plans were ramped up, and this made it even more critical that supply lines across borders are kept open, to ensure the industry can keep the shelves and fridges stocked.
Access to chilled containers for transport of butter and cheese has become very expensive for the dairy industry, because they are stranded in Chinese ports. This is affecting cheese prices worst.
With the route to markets for fresh milk broken down in China, it is reported that more powder is being produced domestically, which will reduce reliance on imports.
On the other hand, a transport lockdown has led to scarcity of labourers and fertiliser ahead of China’s planting season, so food shortages could lead to increased imports.
Market weakness was not reflected in prices announced by co-ops for February milk, with Dairygold paying 31.69 cent per litre, unchanged from the January milk price (3.3% protein and 3.6% butterfat, inclusive of VAT and bonuses).
This equates to an average farm gate milk price of 37.88cpl based on average February solids, including a February early calving bonus.
Announcing the price, the Dairygold management warned markets are experiencing serious volatility, especially on the milk powder front, bearing the brunt of significant downward pressure on prices due largely to the Covid-19 impact.
Earlier, Lakeland Dairies had held their base milk price for February unchanged, but said global dairy markets were extremely volatile, with consumption, transport, and logistical networks severely affected by Covid-19 fallout.
Including a 0.42 cpl share of Glanbia Ireland profit, and early calving bonus of 3cpl, Glanbia will pay manufacturing supplier members 34.42 cpl for February milk, down 1c from January. Glanbia Chairman Martin Keane said Covid-19 was affecting dairy supply chains and trade.