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Dairy prices off to a good start in 2021
Dairy prices have seen a strong start in 2021. The Global Dairy Trade auction in January showed a 4.8% rise, the fifth increase in a row.
BY RENÉ GROENEVELD A
NZ New Zealand has revised its farmgate milk price forecast for the 2020–2021 season to US$ 5.18/kg milk solids, from US$ 4.82/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/kg milk solids. ANZ remains cautious about the longer term outlook. The bank still sees scope for dairy com- modity prices to soften in the second half of 2021, which will impact the milk price for next season. Global milk supply has continued to expand, but so far de- mand is keeping pace, ANZ emphasises. “There has been an enduring lift in milk supply in some of the major dairy export- ing regions of the world, including the United States, EU, Aus- tralia 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.”
Covid-19, higher prices Logistical challenges brought about by Covid-19 have caused delays in some key ports in China, which has increased ship- ping times. To offset the longer time to get product to mar- ket, 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/kg milk solids for the season. Sen- ior 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 pro- gramme 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.”
Positive factors According to Higgins, several factors in 2021 aid positive con- sumer sentiment in key dairy markets. These include the ad- vanced state of several Covid-19 vaccines, less political uncer- tainty after the US election and a weaker US dollar that aids commodity prices and projections for economic growth in most regions. Analyst Higgins says it is important to note that 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 in- creased food service restrictions in these countries which will slow the recovery in this sector. The impact of less govern- ment support – which has been a key reason for strong de- mand and healthy trade during the pandemic – could also be significant in the first half of 2021.” Higgins points out that milk production gains in the Big-7 dairy exporters – Brazil, Argentina, Uruguay, EU, US, Aus- tralia and New Zealand – are set to 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.” Based on recent data and higher expected milk prices, the milk production forecast for 2021 by the US Department of Agricul- ture (USDA) has been raised to 103 billion kg, 0.18 billion high- er than last month’s forecast. Due to an improved economic outlook, enhanced by federal government actions to stimulate the economy, and the USDA’s announcements regarding pur- chases of dairy products, US domestic demand expectations for dairy products have strengthened, says the USDA.
▶ DAIRY GLOBAL | Volume 8, No. 1, 2021 7
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