Insights March 2020

Overview

• Coronavirus outbreak and subsequent uncertainty has brought additional volatility to dairy markets, however, is expected to be short lived.
• Drought in New Zealand will see the New Zealand milk supply story flip from one of growth to one of decline in 2020.
• Rain across parts of Australia is expected alleviate pressure on domestic feed availability.

In response to the Coronavirus outbreak, the global dairy trade (GDT) price index fell 7.6 per cent across the two GDT events in February. The Coronavirus outbreak, and the subsequent impact on economic sentiment in China, and globally, has increased the level of volatility in global dairy markets as participants try to assess the impact.

Like other agricultural markets, this uncertainty is likely to continue due to a short-term decline in demand from China and other countries that are seeing an impact on their supply chain.

Drought in New Zealand is expected to see milk supply flip from a story of growth to one of decline in 2020. Full year supply from New Zealand is now forecast to fall 0.5 per cent year-on-year as drought grips the North Island.

Drought induced destocking is expected to result in a declining New Zealand dairy herd, however global demand uncertainties and increases in forecast for northern hemisphere production are likely to outweigh the global impact of decreased New Zealand production.

Australian milk production remains forecast to drop yearon-year, with the smaller national milk pool expected to lead to reduced volume of milk products exported, and maintaining competition between processers for domestic
supply.

Recent rainfall has improved pasture availability, particularly in Qld and NSW, combined with reduced feed lot throughput this has led to a decrease in the demand for hay from northern lot feeders and graziers.

Rainfall across Victoria has also eased demand for supplementary feed.

Should rainfall continue this will continue to support increased confidence from producers that they will have sufficient feed reserves to see through winter.

Source: Dairy Australia, Global Dairy Trade