Our latest Global Dairy Directions (GDD) outlook highlights that markets remained relatively stable through the December quarter of 2020 – once again except for volatility in the US as cheese prices returned to reality. There are mixed regional fundamentals affecting global markets, but the outlook is mostly bullish, with slowing growth in milk output in Europe and Oceania and sustained retail demand for consumer staples.
The US remains the weakest market, with strong milk production growth and faltering demand as COVID-19 restrictions keep food service channels in deep distress. The new Biden Administration promises to save the day in early 2021 however and kick the problem further down the road by doling out stimulus payments to households and extending buying and donation programs to soak up the likely growth in milk supply through April. Meanwhile it will provide the double-edge of relief … and pay more subsidies to farmers, keeping them in business and producing more milk.
Otherwise, the resilience of demand for products should underpin market stability. This will continue to be tested in coming months however as COVID-19 infections worsen, invoking stricter movement restrictions in many major economies. The uncertainty of extended employment losses and the reduced savings buffer as well as any stimulus measures on dairy consumption means uncertainty for the outlook. While vaccines are now being rolled out, there is significant variation in the scenarios for return to “normality” of life, mobility and food consumption. Meanwhile the changes in mobility and shopping habits will continue to alter the composition of demand for dairy products and ingredients – some with permanent effect. Important developing economies have shown the way in responding to a pandemic and while large risks remain, buyers in these markets are likely to be less cautious compared to experience to date.