Global financial services company Rabobank said milk production is forecasted to continue expanding across the dairy-exporting regions, despite weather-related issues, lower milk prices and efforts to bring supply back in balance with demand in many areas, according to the latest RaboResearch Dairy Quarterly titled “Waiting for the Dust to Settle.”
“The Northern Hemisphere has experienced a rebound in milk and dairy product prices toward the end of [the second quarter of 2020], but it may be too soon to call this a true recovery,” writes Ben Laine, dairy analyst for RaboResearch. “Much of the price support has been driven by government aid that will likely slow in the months ahead. The upcoming U.S. presidential election could extend heightened levels of support in the United States.”
Rabobank said many dairy markets are still dealing with imbalances from demand destruction due to government lockdowns. The heightened retail sales and lower foodservice sales will begin to converge, returning to a more normal balance, but it will take time, and there will be limitations that will prevent a complete return to previous norms, especially in foodservice sales.
According to the report, once government aid and market support slows, market fundamentals will again take hold in a slower economy that will take time to heal from the pandemic's economic damage. Inventory build will put downward pressure on dairy product prices in the months ahead due to the combination of heightened levels of stocks and competition for reduced import demand.
Moreover, Rabobank said the world’s largest dairy import market will be more absent in the world market in the months ahead: China’s dairy imports are forecasted to drop 15% year-over-year in 2020. Weaker currencies will challenge imports elsewhere.