meta Dairy prepares for potential 2020 recession :: The Bullvine - The Dairy Information You Want To Know When You Need It

Dairy prepares for potential 2020 recession


Globally traded dairy products slowed to 8% through Q2 2019 thanks to weakened supply growth, down from 18% growth in the first quarter. In its quarterly report on the dairy industry, Rabobank said that global economic activity is slowing and confidence is waning for both customers and dairy farmers.

As 2019 comes to a close, Rabobank said that it is finding the dairy market tighter than previously expected. Producers are more constrained and demand has remained steady despite trade and economic troubles.

Tom Bailey, senior dairy analyst at Rabobank, said, “Economic risks highlighted in previous Dairy Quarterly reports are turning to reality. China posted its weakest year-on-year GDP growth in 30 years through Q2 2019 versus 2018, and Southeast Asian markets have been impacted.

“Similar challenges face the EU, as Germany saw its economy contract in Q2 compared with last year, a worrying sign for a market facing other challenges, with a possible challenging end to Brexit.

“The European Central Bank responded by lowering rates by 0.5% and announcing an open-ended quantitative easing of €20bn a month as recession risks rise. The US has also shown some concerning data, the treasuries 2-10 year yield curve finally inverting fueling speculation of an impending recession.”

Many economic organizations have now projected the possibility of a second-half global recession in 2020, and Rabobank noted that typically during recessions, dairy product prices can decline by 20%-40%.

Even with this potential economic setback looming, most global dairy markets have remained steady throughout 2019. In the US, cow numbers continued to decline through August after falling down by 82,000 in July.

But Rabobank said higher milk prices in the second half of 2019 and into 2020 are likely to stabilize the herd and boost milk flows by about 1% in the next 12 months.

Trade tensions between the US and China have finally started to ease, with China granting some limited exemptions to its tariffs for American products. Though US consumers may start to feel some pressure as the previous tariffs make their way to general consumer goods, Rabobank said.

China is still dealing with the African Swine Fever crisis and critical levels of hog loss. This is likely to affect global animal protein markets for years to come. But recently, rising milk prices in China have offset increasing beef prices.

China’s mild recovery in production, strong import growth and stable consumption have led to some stock building, Rabobank said, and in the second half of 2019 China is projected to have lower imports.

“Trade wars remain a logistical headache for dairy exporters although they are unlikely to have a significant impact on the mass balance of product flows over the next 12 months. The global dairy market has become more liquid in recent years, allowing flexibility in supply,” Rabobank said.

“Overall, the global dairy market looks set to remain firm through the coming six months before supply is able to get out ahead of demand growth, at which point we might see some downside pricing pressure.”

Source: dairyreporter.com


Send this to a friend