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Insights May 2020

11 May 2020 |Dairy
Dairy cow image

Insights May 2020

11 May 2020 |Dairy
The May 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

  • Global dairy prices fall under the pressure of increased global supply and supply chain restraints as a result of
    COVID-19.
  • Domestic retail demand for dairy products shows signs of stabilising, however, purchases for some products are
    expected to remain elevated whilst social distancing measures remain in place locally.

In response to increased global supply, especially in the northern hemisphere as they enter spring, the Global Dairy Trade (GDT) price index fell 3 per cent across April with further decreases expected in May.

The COVID-19 outbreak has continued to bring a high level of uncertainty in global dairy markets and disruption to global demand.

Increased supply in the EU has been coupled with a decrease in the demand for milk from foodservice outlets and disruptions to supply chains due to COVID-19. The European Commission has re-introduced a private storage aid scheme in order to prevent oversupply in the European market.

The United States Department of Agriculture (USDA) have begun purchasing dairy products, as they begin to implement widespread measures to reduce milk output domestically. Any reduction in dairy production should put some upward pressure on global prices.

Australia’s milk production is beginning to decrease as the end of the season approaches, with the current sentiment that ongoing cost challenges will weigh on production in some regions.

Storage issues are not likely to be a problem in Australia as a smaller milk pool and underutilised plants reduce the risk of factories becoming full.

Despite increased air freight costs disrupting dairy exports to North and South-East Asian countries, total Australian dairy exports to these countries increased 2.6 per cent in April. Air freight costs have been slightly alleviated by the Government announcing an initiative to deploy flights from capital cities to North and South East Asian countries.

The lower Australian dollar is supporting the export competitiveness of Australian dairy products; however, this also adds to the cost of importing materials and inputs that are critical for dairy manufacturing. In response to the COVID-19 outbreak, some regions in China have increased powdered milk production, and China is now prioritising the use of their domestic production ahead of imported.

Dairy products in Australian grocery stores have increased substantially with milk and butter sales hitting two-year highs in March. Significant increase to long life milk, up 76 per cent, and fresh milk, up 53.5 per cent, over a four-week period in March were key drivers of this trend, offsetting loss of business in the food service sector. Sales remain elevated for products such as fresh milk and butter.

Saputo recently announced they will maintain their average milk price of $7.05 per kilogram of milk solids for the current season, however continued uncertainty and heightened market risks due to the COVID-19 outbreak will have an impact on opening milk prices for the coming season.

 

Sources: Dairy Australia, Global Dairy Trade, Nielsen Homescan

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