Dairy markets have started to feel the impact of coronavirus, with lockdowns in many countries disrupting trade and shutting restaurants.
Fresh Agenda director Steve Spencer said the most significant impact was being felt in American and EU markets.
Both countries were approaching peak milk output.
Output was growing by 1-1.5 per cent, year-on-year, but processors had found that a large percentage of their food market – foodservice or eating out – had shut.
“They face the urgent problem of simply too much milk for the market over coming months and quickly drying it to lower supply and divert it to storable products,” Mr Spencer said.
“Industries are calling for government help to buy surplus product off the market and help address the need to slow down milk, while compensating farmers for the sudden drop in the size of the market. ”
The most significant price impact had been seen in skim milk powder, with prices in the EU nearing intervention buying prices, a little below 1700 euros/tonne, and below US$2,000/t in the US
Cheese prices had also fallen hard, with US cheddar prices trading at US$2,500/t.
There was a double impact on butter prices, with retail markets closed, additional milk being sent to driers and a large portion of fresh cream going into food service..
“The extent of this pressure will depend on how quickly milk supply will be slowed and of course, how long lockdowns remain in place,” Mr Spencer said.
Growing uncertainty
Maxum Foods Dustin Broughton said uncertainty was growing.
“The impacts of lockdowns to control the spread of disease on employment in major business sectors will transform into staggered and uncoordinated measures to unwind restrictions and settle into a deep recession in major economies – the length and depth of which depends on many factors,” Mr Broughton said.
“These profound changes will significantly impact the upstream supply chain, causing changes in product mix in response to major shifts in product demand – mainly due to weaker cheese demand – to avoid large production of mozzarella and processed cheese.”
Demand from developing regions remains robust, including a recovery in Chinese business and consumer activity, conditional on COVID-19 being held in check.
While the market crash has been sudden, milk price signals and supply-side impacts would lag.
“Commercial and policy measures may intervene to address surplus milk supplies – kicking the can down the road into a scenario that global markets have only just shaken off,” Mr Broughton said.
He said skim milk powder prices had fallen, with the expected rapid stock build, initially as a result of the slowing of global trade, due to restrictions on freight and logistics.
“The risk has escalated with the expected increase in skim milk powder and non-fat dried milk (NFDM) production as major producers avoid production of cheese exposed to food service markets which have been decimated by COVID-19 lockdowns,” he said.
European spot prices for whole milk rose in March, after softening in February, as global markets continued to be disrupted by the spread of COVID-19.
New Zealand values dropped under US$3,000/t mid-March and continued to slide through the month.
The story Overseas dairy processors feeling coronavirus pain first appeared on Stock & Land.
