Rabobank: Global Dairy Q4 2020 - Tepid Supply Growth Awaits a Booster Shot for Demand

As a challenging 2020 ends, more optimistic projections set the tone for 2021.
calendar icon 21 December 2020
clock icon 2 minute read

Several factors in 2021 aid positive consumer sentiment in key dairy markets, including advanced states of several Covid-19 vaccines, less political uncertainty after the US election, a weaker US dollar that aids commodity prices, and projections for economic growth in most regions after the 2020 recession, writes the RaboResearch Dairy Team.

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“Supply growth is slowing across primary export regions. Milk production gains across the global Big-7 dairy exporters surprised in 2020, with growth at its highest level since 2017 (4.5bn liters). However, we project a more moderate growth rate in 2021, albeit positive across all regions, totaling 2.7bn liters,” according to Andrés Padilla, Senior Analyst – Dairy.

The duration of the second Covid-19 wave and the arrival of vaccines are key to stabilizing Q1 2021 demand in foodservice channels. Retail sales should strengthen further as more meals are consumed at home. Nevertheless, a full recovery in dairy demand is contingent on reaching pre-Covid19 product sales.

The impact of less government intervention could be significant in 1H 2021. “It is likely that fiscal constraints will prompt governments to scale back dairy purchases and cash payments to consumers in 2021. This could limit demand growth and impact global prices in 2021 if economic recovery does not materialize,” says Padilla.

Chinese supply/demand balance could deflate market optimism. We estimate that Chinese 2021 milk production will grow by 6% compared to 2020, slightly outpacing demand growth. The need for destocking could reduce imports from 2020’s lofty levels, and limit gains in dairy product prices.

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