The ripple effects of COVID-19: A look into global dairy

In Q4 of 2019, global dairy product prices were on an upward trajectory. This has been stagnant in Q1 2020. But for China, at least, Rabobank projects that consumer buying patterns will normalize by the second half of 2020.

In its latest report​, Rabobank reminded the industry that dairy was already at risk in 2020 thanks to a projected slowdown in the general global economy, even before the COVID-19 pandemic. The situation is now likely to escalate.

Delaying agreements and demand

Milk production from the big seven global regions is rising, and all are expected to report year-on-year growth in Q2 2020, even against low comparables. In the US, production is strong for now while there is a ‘slightly gloomier’ outlook for demand in the coming months.

The EU’s milk production is growing, bolstered by mild winter weather, while China’s dairy import requirements are expected to drop by 19% in 2020. Rabobank says this is based on anticipated lower dairy demand in retail and foodservice channels and a build-up in milk powder stocks.

However, Rabobank pointed out that China’s 2020 imports forecast is not expected to be as severe as the 2014-2015 destocking, which resulted in a 35% decline in 12 months.

"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 2020,"​ Rabobank said.

Following the landmark signing of the phase one trade deal between the US and China, measures of the deal hang in the balance. China committed to purchasing significant quantities of dairy products from the US, but Rabobank said it’s possible that the country could invoke the article of force majeure to potentially delay that agreement.

Rabobank is lowering its 2020 US demand growth projections from 0.8% to 0.5%. The end of February brought one of the worst weeks in the US stock market’s history, which prompted a cut on short-term interest rates. This could result in lower domestic dairy commodity prices.

“Central banks around the globe are proactively addressing the economic impact of the coronavirus outbreak with interest rate cuts and stimulus packages. These could impact currencies and trade flows in the coming months,”​ Rabobank said.