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Insights August 2020

10 August 2020 |Dairy
Dairy cow image

Insights August 2020

10 August 2020 |Dairy
The August update provides an analysis of production and pricing trends for Australian dairy producers. It provides producers with a timely overview of current trends and an outlook for the coming months.

Overview

  • Australian milk production has the potential to outperform early forecasts for 2020/21 due to favourable seasonal conditions.
  • Milk supply in the Northern hemisphere has declined month on month in response to falling demand and high inventories.
  • Global dairy prices remain firm on the back of opportunistic buying, a trend that is expected to be short lived.

Australian milk production continues to increase on the back of favourable seasonal conditions which have provided incentive for farmers to continue restocking and taking advantage of reduced costs for some input. The forecast for favourable conditions leading into spring has the potential for milk production to outperform the four to five per cent forecast growth in supply for 2020/21. Several key dairying regions in Tasmania and southern Victoria are at risk of becoming too wet which may hinder pasture growth over the next month.

Offshore, milk supply growth in the Northern hemisphere has eased month on month in response to processors requests and lower prices driven by a decline in demand due to COVID-19. Although year to date volume remains 1-3 per cent higher across the EU which has kept inventory levels high despite a curb in production in recent months. Elevated inventory levels remain a source of uncertainty in international markets and are likely to influence prices over the coming months.

A second wave of COVID-19 in the US, Australia and parts of the EU is expected to disrupt the re-opening of foodservice outlets and cause volatility in international markets with a mix of increased purchasing of milk powder and declining demand particularly for cheese and butter. Both milk powder and cheddar prices kicked in July on the back of opportunistic buying from South and Central America and the Middle East. The more traditional Asian markets kept in line with their usual purchasing pattern. Food security is likely to remain a motive for opportunistic purchasing which may aid demand in the short term for milk powder. Supply and demand fundamentals are likely to swing to the supply side in the coming months as more product becomes available in the southern hemisphere, this has the potential to put downward pressure on prices for finished products such as milk powder and cheese.

   

Source: Global Dairy Trade

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