The Agricultural and Horticultural Development Board (AHDB) is confirming that global dairy markets will remain strong in the short-term, which will support farmgate prices.
However, there are some risks to markets later in the year which could put some downward pressure on prices.
Lower Chinese import demand, increased availability of US products on global markets, or a delay in the return of food service demand, could all limit further positive price movements.
Dairy markets forecast
AHDB dairy analyst Patty Clayton explained:
“At a global level, forecasts suggest limited growth in milk production across the key surplus regions. In total, supplies are expected to increase by just over 1% in 2021, compared to the 1.4% growth recorded in 2020.
“The lion’s share of this extra milk is expected to come from the US and the EU.
“However, rising feed costs in both of these regions could put farmer margins under pressure and restrict supply growth in the second half of the year.”
New Zealand dairy sector
Clayton continued: “New Zealand dairy farmers are reported to be in a good position going into the new season, with a profitable price forecast and strong demand for their product leading to good supply growth.
“Beyond any adverse weather events, the largest risk to this will be a slowdown in Chinese import demand.”
According to Clayton, demand for dairy has remained strong through 2020, and will continue to be the key driver in dairy markets through 2021. Economic growth around the world is improving, and food service demand is returning.
World Bank projections
Recent projections from the World Bank point to a global growth of 4% in 2021, following a contraction of 4.3% in 2020.
The AHDB analyst pointed out that in both US and EU markets, the return of domestic food service demand will be important in maintaining profitable price levels.
In these markets, the expectation is that sales will begin to recover through 2021 as vaccination programmes roll out.
However, sales are not expected to reach pre-Covid-19 levels by the end of the year. Industry estimates suggest that sales will still be 22% and 27% lower than 2019 levels by the final quarter of 2021 in the US and EU respectively.
Clayton continued:
“Recent price trends on global markets are positive across all dairy products. In most cases, current pricing is at or above the five-year average, with the exception of butter in the US.
“This is positive in terms of supporting farmgate pricing, although the level of support will be subject to how product availability develops relative to demand.
“EU stocks are reported to be well balanced for cheese and butter, but low for skimmed milk powder.
“A year of strong exports and lower product production has kept stocks from building up.
“Higher domestic demand, and limited milk supply growth, is expected to constrain the EU’s exportable supplies in 2021, which should support prices on global markets,” she concluded.