Overall market fundamentals through the coming quarters will remain mostly supportive of prices, according to the Global Dairy Commodity Update for August 2021.
As milk production in the northern hemisphere grows at a slower pace and the improving COVID situation allows for gradual re-opening of food service channels.
Demand for dairy commodities remains steady, although disruptions due to the rapid spreading of the Delta variant of COVID into unvaccinated populations out of control in many regions, forcing many governments to reimpose restrictions.
Global trade grew 4.8 per cent year-on-year in May-2021 and 3.9 per cent over May-2019. The strong gain over the prior year is partly due to the lull in trade caused by the impact of COVID port disruptions, but the ongoing surge in China’s demand explains a large portion of the total gains. The recurring theme of the dominance of China continued and will likely remain in June data based on NZ’s June exports data.
China’s expanding demand continues to be critical to the balancing of the global market, with its growth in imports outweighing some weaknesses in demand in milk powders from some regions challenged by affordability of firming prices. In the short-term, commodity prices may drift weaker as buyers pushback against elevated prices.
The glut of US milk will gradually ease with signs of a peaking in cow numbers while cheese and butterfat balance sheets should improve as demand recovers with stronger food service patronage. Rebalancing of the US cheese market will have an important bearing on its export competitiveness, while growth in milk powder output will slow.
The size of the peak in NZ milk supply in the current season remains a lottery but a “normal season” is forecast, and a strong milk price will drive higher yields on NZ farms.
The sustainability of strong Chinese WMP, cheese and butter demand is specifically critical to how well NZ can balance its WMP supplies, and influence availability of butterfat – already suffering from weak demand in developing markets.