Milk demand dynamics will depend on economic recovery and vaccination results – Rabobank

A weak dollar will stimulate consumption growth in deficit regions and reduce the price of products in euros. Overall, economic growth is projected in many regions of the world after the 2020 recession.

At the same time, the dynamics of milk production growth in the key milk exporting countries (TOP 7) will slow down compared to 2020. Rabobank predicts growth of 2.7 million tons of milk in 2021 - for comparison, in 2020, the growth will be 4.5 million tons.

The most affected sector will remain catering, as restrictions due to the second wave are still in place. Retail demand, on the other hand, is growing during the period of restrictions due to the growth of domestic consumption.

Prices for exchange-traded dairy products remain high after rising in the second and third quarters of 2020, even amid the seasonal peak of milk production in Oceania, a key factor is demand in Asian markets that are successfully coping with the pandemic and showing economic growth. Prices are also positively affected by the decline in stocks in the US and the EU. According to the European program of support for private storage, cheese stocks decreased by 43%, skimmed milk powder - by 56%.

At the same time, imports of dairy products from China will decrease in 2021, taking into account the growth of production by 6% next year and a slight decrease in inventories in the second half of 2020. In 2021, imports in terms of milk are expected to almost halve amid a decline in demand growth from 9% in the first half of 2021 (an increase compared to the low base of the first half of 2020) to 3% in the second half of 2021. China solves the problem of self-sufficiency in milk, which increases the importance of other markets in world trade.

Brexit remains another factor that increases uncertainty in the dairy market. The transition period ends on December 31, 2020, which could create disruptions in trade in the first quarter of 2021. In the UK, a double-digit drop in GDP is already expected in 2020, a hard Brexit could cause a negative reaction from financial markets and a devaluation of the British pound against the Euro.

Rabobank forecasts that feed prices will remain high in 2021. Rabobank predicts prices for soybeans on the Chicago Stock Exchange at the level of 12-12. 4 dollars per bushel, corn prices will be higher than 4.2 dollars per bushel.

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