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Improved global dairy outlook sees lift in 20/21 NZ milk price forecast, but sector not out of woods – Rabobank report

Government intervention buying and the reopening of the foodservice sector have helped jump start dairy demand across key international markets, and the global dairy outlook is now not nearly as dire as it was at the height of the Covid-19 crisis, according to a new report by agribusiness banking specialist Rabobank.

While remaining cautious about the underlying market fundamentals in the months ahead, Rabobank says the improved global outlook has seen it increase its farmgate milk price forecast by 35 cents to NZD 5.95/kgMS for the 2020/21 season.

In its latest quarterly global dairy report – Dairy Quarterly Q2 2020, Waiting for the dust to settle, the bank says dairy markets have performed better than expected over recent months and prices should now avoid dropping to the levels anticipated earlier in the year.

“The northern hemisphere experienced a rebound in milk and dairy product prices toward the end of quarter two as a result of government intervention, while we’ve also seen a rebound in cheese prices – particularly in the US – with this largely attributable to the re-opening of the food service sector,” report co-author RaboResearch Senior Analyst Michael Harvey said.

“And these factors have helped boost dairy demand and prices have moved back toward, or in some cases above, pre-Covid levels.”

Mr Harvey said while price rebounds were a sign the global dairy sector was on a path to recovery, the true strength of the current market was difficult to assess and the sector was not yet “out of the woods”.

Rabobank Senior Data Analyst Michael Harvey

Rabobank Senior Data Analyst Michael Harvey

“Many dairy markets are still dealing with imbalances from demand destruction due to Covid-19 related government lockdowns. The heightened retail sales and lower foodservice sales will begin to converge, returning to a more normal balance, but it will take time, and there will be limitations that will prevent a complete return to previous norms, especially in foodservice sales,” he said.

“Government aid and market support are also soon expected to slow and, once this occurs, market fundamentals will again take hold.”

Mr Harvey said expanding global supply and economic recession across much of the globe would further hinder the speed of the recovery in dairy markets.

“Milk production is forecast to increase by one per cent across the big-7 dairy regions (US, EU, Brazil, Argentina, Uruguay, New Zealand & Australia) in the second half of 2020 despite weather-related issues, lower milk prices and efforts to bring supply back in balance with demand in many areas,” he said.

“We also anticipate much of the world will emerge from the Covid-19 lockdowns into economic recession with slower growth weighing on domestic demand as well as curbing import demand in many regions.”

In China – New Zealand’s largest dairy export market – import demand was anticipated to contract sharply, Mr Harvey said.

“The world’s largest dairy import market will be more absent in the world market in coming month due to above average inventory levels, sluggish demand and growing domestic production,” he said.

“China’s dairy imports between January and April were higher than anticipated, however, we still expect to see overall import demand fall be 15 per cent in 2020 year-on-year.”

Mr Harvey said global currency movements were a further factor which could significantly influence dairy returns in different regions – particularly for export-focused producers like New Zealand.

New Zealand

The reports says New Zealand had a mixed finish to the 2019/20 milk production season with the effects of drought being felt across much of the North Island.

“With one month left to round out the 19/20 season, Rabobank expects New Zealand to close the season at 21.7 million metric tonnes – representing a small decline of 0.6 per cent on the previous season,” Mr Harvey said.

“Rabobank’s current forecast for the 19/20 season stands at NZD 7.20/kgMS, down 10 cents on last quarter’s forecast and at the mid-point of Fonterra’s forecast range of NZD 7.10/kgMS to NZD 7.30/kgMS.”

Mr Harvey said a return to New Zealand milk production growth was anticipated in 20/21.

“With a return to more favourable seasonal conditions through spring and a more normal finish, total milk production is forecast to expand by 1.8 per cent to 22.0 million metric tonnes.”

“One of the key risks to this production outlook is climatic, with the latest climate outlook from NIWA showing normal to below-normal rainfall across much of the country in autumn 2021.”

Despite expectations of a reduced pay-out in the 2020/21 season, the report says, many New Zealand dairy farmers are looking to reduce discretionary spending as opposed to making major cuts to production systems which would negatively impact milk flows.

“We’re also seeing a strong appetite from farmers for Fonterra’s Fixed Milk Price ahead of the 20/21 season.” Mr Harvey said.

“The monthly allocations of milksolids have been oversubscribed for recent offers and, at the time of writing, the two tranches of milksolids offered under the Fixed Milk Price program ranged from NZD 6.42/kgMS to NZD 6.90/kgMS – excluding service fee.”

What to watch in the second half of 2020

As the world continues to grapple with the Covid-19 crisis, the report says changing consumer-consumption patterns shape as one of the key watch factors for the sector in the second half of the year.

“While economic recessions around the globe are expected to have a negative overall impact on dairy demand, the dairy category is also seeing some positive consumption patterns emerge amid the crisis with many consumers choosing to return to trusted, nutritious products like dairy,” Mr Harvey said.

“The dairy industry is expected to double-down on communicating the nutrient-density of dairy products moving forward and, in some regions this message is receiving government backing. In China, for example, the government is re-emphasising its recommendation to consume 300 grams of dairy daily – more than three times the current average with this supported by doctors speaking publically on YouTube-like channels,” Mr Harvey said.

“Around the world we’re also seeing consumers taking a “back to basics” approach towards dairy in response to the pandemic. Many are opting for simple, familiar, staple dairy products amid the crisis and, as a result, some of the premium, differentiated products that gained strength in recent years could face struggles in a slower economy.”

Other watch factors for the dairy industry cited in the report include the impact on markets of elevated dairy inventories, the potential resurgence of the virus, shifts in global trade and the potential for larger-then-normal stimulus and aid packages in the US in the lead up the election in November.


Rabobank New Zealand is a part of the global Rabobank Group, the world’s leading specialist in food and agribusiness banking. Rabobank has nearly 120 years’ experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank is structured as a cooperative and operates in 40 countries, servicing the needs of about 8.6 million clients worldwide through a network of close to 1000 offices and branches. Rabobank New Zealand is one of the country's leading agricultural lenders and a significant provider of business and corporate banking and financial services to the New Zealand food and agribusiness sector. The bank has 32 branches throughout New Zealand.


Media contacts:

David Johnston
Marketing & Media Relations Manager
Rabobank New Zealand
Phone: 04 819 2711 or 027 477 8153

Denise Shaw
Head of Media Relations 
Rabobank Australia & New Zealand 
Phone: +612 8115 2744 or +61 2 439 603 525