April 26, 2020

Q1 2020 Dairy Quarterly Update

Dairy Outlook Updated by Rabobank

In March 2020, Rabobank published the Q1 2020 Dairy Quarterly, calling it “The Corona Hangover.”  On April 7, 2020, Rabobank released an update to the report due to the current status of COVID-19 in the United States.

The update states how the dairy industry is in “uncharted territory” and expected to experience three waves of market movement over the next twelve months. “Rabobank has revised its dairy market forecasts based on the rapidly changing post-COVID-19 supply and demand conditions,” says Mary Ledman, Global Sector Strategist- Dairy at Rabobank. “The magnitude of adjustments reflects each region’s product mix, sales channel, and export exposure.” The waves are panic-buying, through muted retail demand and greater logistical challenges, to longer-term loss of consumer purchasing power. The update is an “unfortunate reversal” for the short-term dairy industry outlook.

The first wave will be a high demand for dairy products due to the first months of COVID-19 and the stay-at-home orders. The demand for dairy products will offset a larger portion of declining foodservice demand. The cheese market has declined quickly, with prices of cheddar falling 37% in two weeks, the lowest since 2009.

The second wave will be categorized by reduced retail demand and increased financial and logistical challenges. During this wave, consumers are expected to only shop on an as-need basis, rather than large shopping trips. This wave will be affected by the prolonged impact from lower foodservice sales, the seasonal peak in Northern Hemisphere milk production, and a significant slowdown in global trade. Also, processing capacity, storage availability, and credit terms are expected to reach a peak.

The final long-term wave will likely include a global recession and loss of income and savings. This wave could keep dairy product prices and farmgate milk prices under pressure well into 2021. Rabobank also notes that dairy products are a key part of governmental aided feeding programs, so an increase in dairy product usage could be seen with the increase in food assistance program participation.

The updated report lowers dairy prices by 30% compared to The Corona Hangover report. Between 40-50% of the U.S. milk production is protected by risk management programs, and governmental aid packages will likely support dairy producers without coverage. “Nevertheless, the negative market impact from COVID-19 could have a significant negative impact on producers and accelerate dairy farm consolidation,” the report states.