Production forecast adds to pressure on dairy market values

Global dairy market prices could fall in the second half of 2021 as demand eases and production levels rise, analysts have suggested.

According to agricultural finance specialist Rabobank’s latest quarterly outlook, milk production should rise by 0.5% over the 12 months of 2021 compared with last year.

That prediction was below a 1% rise forecasted earlier in 2021, when a strong finish to the dairy season in New Zealand and higher deliveries in the US were expected to push up supplies.

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Instead, Rabobank has now predicted that the increases in those regions would be countered by the effect of poor grass growing conditions across the EU this spring, which has held back output.

Record cereal prices had also limited attempts to offset the poor grass growth with concentrate feeding, adding to pressure on output levels.

The report suggested feed price levels would remain elevated throughout the year, as challenging weather in key crop growing areas of the US and South America would limit the 2021 harvest.

This could add pressure to farm margins and curtail production growth in the second half of the year, Rabobank said.

Margins could be squeezed further as the year progresses, with downward price adjustments on the global dairy market due to falling

demand.

Cautious outlook

Strong Chinese import demand through the first half of 2021 had been supporting higher dairy values.  

But Chinese domestic production has continued to grow and this could limit demand for imports in the coming months.

Rabobank also offered a more cautious view of market recovery post Covid-19.

Although retail and foodservice demand was nearing pre-pandemic levels in large dairy markets such as the US and China, the virus had not gone away, it said.

The bank said vaccine roll-outs were slow in many regions and new waves and variants persisted, potentially posing a risk of volatility in dairy markets as the year progresses.