Dairy prices off to a good start

25-01-2021 | |
Dairy prices off to a good start
Dairy prices off to a good start

Dairy prices have seen a strong start in 2021. The latest Global Dairy Trade (GDT) auction on 19 January showed a 4.8% rise, the 5th increase in a row.

ANZ New Zealand has revised its farmgate milk price forecast for the 2020-2021 season to $US 5.18 dollar per kg milk solids, from $US 4.82 per kg milk solids. The bank’s forecast is now towards the upper end of Fonterra’s milk price guidance of US $4.82 – US $5.25 per kg milk solids. ANZ remains cautious about the longer-term outlook. The bank still sees scope for dairy commodity prices to soften in the second half of 2021, which will impact the milk price for next season.

Dairy prices off to a good start

Global milk supply has continued to expand but so far demand is keeping pace, ANZ emphasises. “There has been an enduring lift in milk supply in some of the major dairy exporting regions of the world, including the United States, EU, Australia and New Zealand. It was feared that this extra supply would not be able to be absorbed by the markets but thus far demand appears to be holding up well.”

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Covid-19, higher prices, US election impact

Logistical challenges brought about by Covid-19 have caused delays in some key ports in China, which has increased shipping times. To offset the longer time to get product to market, shipping firms have lifted their prices, since the delays mean they can make fewer journeys. But New Zealand dairy products are still getting to market relatively well, ANZ says.

Rabobank New Zealand has also increased its farmgate milk price forecast, to US $5.04 per kg milk solids for the season. Senior Rabobank analyst Emma Higgins says that import demand continues to be firm in Asian markets that have successfully controlled Covid-19.

“This has contributed to dairy prices staying high throughout our seasonal production peak,” the Rabobank analyst says. “Plus, we’ve seen the European Private Storage Aid programme whittle down cheese and skim milk powder stocks in the month of October, and these lower European inventories – as well as stock drawdown in the US – are another positive for dairy demand and commodity prices moving forward.”

According to Higgins several factors in 2021 aid positive consumer sentiment in key dairy markets. These include the advanced state of several Covid-19 vaccines, less political uncertainty after the US election and a weaker US dollar that aids commodity prices and projections for economic growth in most regions.

In 2021, we project milk production will continue to grow across all key regions, however we expect growth will be slower.

Analyst Higgins says it is important to note several threats to the global dairy recovery remain. “The pandemic is far from over and we’re currently seeing Covid-19 cases rising in Europe, the US and South America. This is resulting in increased food service restrictions in these countries which will slow the recovery in this sector. “The impact of less government support – which has been a key reason for strong demand and healthy trade during the pandemic – could also be significant in the first half of 2021.”

Higgins points out milk production gains in the Big-7 dairy exporters – Brazil, Argentina, Uruguay, EU, US, Australia and New Zealand – are set moderate in 2021 after strong growth in 2020. “In 2021, we project milk production will continue to grow across all key regions, however we expect growth will be slower with a total of 2.7 billion litres additional production projected.”

Global dairy market:
Overview of prices for: raw milk, dry whey, skimmed milk powder, cheese and butter, as well as global dairy trade and world prices for dairy products.

Based on recent data and higher expected milk prices, the US Department of Agriculture’s milk production forecast for 2021 has been raised to 103 billion kg, 0.18 billion higher than last month’s forecast. Due to an improved economic outlook, enhanced by federal government actions to stimulate the economy, and USDA’s announcements regarding purchases of dairy products, US domestic demand expectations for dairy products have strengthened, says the USDA.

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René Groeneveld Australia correspondent