Page 35 - Food & Drink Magazine Sep-Oct 2020

Dairy market pressures
On a global scale, dairy commodity markets have weakened, while specific factors continue to influence prices and create diverging trends. Maxum Foods procurement director Dustin Boughton provides this market report.
COVID-19 has really created havoc around the world this year, in dairy as well as other commodities. In Australia, dairy demand has been unpredictable due to the pandemic and associated travel and border-crossing restrictions.
Fundamentals are likely to steadily worsen in the coming months as milk supply expands faster year-on-year and demand slows as recession takes hold due to COVID-19.
Consumer buying patterns have also changed. People are obviously staying home, buying more ready-made meals and eating out less. Supermarkets have seen an increase in demand, which is a positive for the dairy industry.
“ The ongoing impacts of trading down by shoppers and reduced discretionary spending will weaken overall demand and increase price sensitivity.”
The year-on-year declines in dairy trade are getting smaller, aided by lower prices for fats and milk powders. In the coming months, we will likely see a continuation of major trends seen here recently, including weaker cheese and butter trade due to COVID-19 exposures, alongside improved milk powder demand at attractive prices.
The Global Dairy Trade platform has recorded negative numbers for
two months, but with volumes building as the
southern hemisphere comes into season, we’ll see if there’s sufficient demand to hold it up.
The second wave of infection disrupted the staggered reactivation of food service sales. This market will remain under extreme pressure as governments try and navigate choices between health and economic impacts.
This will ensure a slow and bumpy recovery in food service channels in particular, while business and tourism travel will remain limited until well into 2021.
We’re also seeing government intervention with the Lion Dairy & Drinks, China Mengniu Dairy Company deal falling over due
to the Foreign Investment Review Board showing no sign of making a decision on the proposal.
That allows companies like Bega and Norco to look at possible acquisitions.
Milk production growth in the EU and US is increasing, while domestic demand – sustained by strong grocery channel sales for cheese and butter – will be increasingly vulnerable to the effects of recession.
The ongoing impacts of trading down by shoppers and reduced discretionary spending will weaken overall demand and increase price sensitivity.
Global protein and fat prices will generally be driven by the
risk of stock-build in skim milk powder and butter as milk supplies expand and cheese producers try to match demand.
This risk is highly contingent on the sustainability of growth in cheese demand in Europe, as well as prospects for increased exports, while acute tightness in the US cheese situation will gradually ease.
Oceania markets have been buoyed by sustained demand for whole milk powder from China. But in this and other developing regions, butterfat and cheese demand are highly exposed to restricted food service demand,
while buyers make hand- to-mouth commitments for ingredients. ✷
DAIRY BUSINESS
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