Dairy Demand Will Be In Driver’s Seat
After a year of pandemic and lockdowns across the globe, the view of the future is clearer and more hopeful than it has been for months, says Rabobank in its recently published “Global Dairy Quarterly Q1 2021: Strength Ahead of Northern Hemisphere Flush.” By mid-year, there should be a palpable return to familiar consumer patterns of dairy demand. It won’t be immediate, and certainly not smooth, but on balance, it should be positive for dairy markets, the report says.
Rabobank forecasts a 1.1% increase in milk production across the Big-7 dairy-producing regions — the United States, the European Union (EU), New Zealand, Australia, Brazil, Argentina, and Uruguay — in 2021. This is a slowdown compared to the 1.6% year-over-year increase in 2020 and represents a modest tightening of supply, which should help support markets as demand settles into post-vaccine balance, the report says.
“China’s near-term import demand is elevated but is expected to slow in the second half of the year. High domestic milk prices are driving interest in expanding domestic milk production, which could reduce import needs in the future,” says Ben Laine, dairy analyst, Rabobank. “The high milk prices favored imported whole milk powder (WMP) early in the year, but that demand could see a pause following a recent spike in Oceania prices. Milk prices in China have likely reached a peak and will begin to soften from here.”
Demand will be in the driver’s seat in 2021, Rabobank says.
“Throughout the pandemic, global milk supply has been much less impacted than demand. Disruptions arose as consumers made significant shifts in their consumption patterns, which spilled through supply chains. Most of those shifts were abrupt and severe as we entered the crisis, but coming out should be much more gradual,” Laine says.
In the United States, cheese inventories started to build over the winter, up 3.3% year-over-year at the end of January, the report notes, adding those inventories should be no challenge to work through.
Butter inventories, meanwhile, remain elevated at 33% above last year. The report says this is an improvement from the 44% year-over-year increase at the end of December.
“As dairy products begin to refill the foodservice supply chains, we expect less surplus milk to head to butter churns, resulting in the eventual drawdown in butter stocks,” the report says. “Likewise, a market surprise to the upside exists for the butterfat market if the timing of the recovery (pull on cream supplies) occurs during the seasonal low period (third quarter) of butterfat production.”
Most economies will grow in 2021 compared to 2020. Rabobank is forecasting a 4.5% year-over-year increase in global gross domestic product for 2021, compared to a 3.8% decline in 2020 in dairy demand. The impact of widespread vaccination should be felt by mid-year, which will be positive for economic activity.
There still will be a long tail to some aspects of the recovery, Rabobank adds.
“We might not be filling arenas or convention centers this year, but restrictions on restaurants are likely to be lifted, and holiday gatherings are less likely to be discouraged,” Laine says. “This will positively impact dairy demand, particularly in markets like the U.S. where a greater volume of dairy is consumed through food service channels than through food prepared at home.”
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Source: Cheese Market News