Global Dairy Prices Bounce Back From Coronavirus Slump

Date: Thursday, July 23, 2020
Source: The Wall Street Journal

Increases occur as pandemic eases in Asia and Chinese growth returns

A pickup in demand for milk products in China and other parts of Asia has sparked a rebound in global dairy prices, improving the profit outlook for farmers from New Zealand to the U.S.

Expectations of lower demand for many commodities during the coronavirus pandemic helped push dairy prices to an 18-month low in May. Since then, the Global Dairy Trade price index has risen 11% and is now back to near levels seen in January, before the contagious respiratory virus began spreading globally.

The price index covers products including butter, cheddar cheese, skim-milk powder and whole-milk powder, and is calculated from international auctions that are conducted twice a month. Dairy producers and processing companies all over the world participate in these auctions, and the index is also used to help price dairy exports.

The average selling price of whole-milk powder, the biggest component of the index and a common ingredient in cakes, ice cream and chocolate, was $3,218 a metric ton at an auction earlier this week.

Industry participants have pointed to China’s economic recovery as a key reason for the improving prices. The country is the world’s largest importer of dairy products, buying hundreds of thousands of metric tons of milk powders, whey, cheese and butter each year. Its giant population has been a growing consumer of milk, cream and cheese.

“Dairy consumption in China is recovering with more people spending on food,” said John Monaghan, chairman of Fonterra Co-Operative Group of New Zealand, in a company update earlier this month. Fonterra, the world’s largest dairy exporter, recently raised its forecasts for how much it plans to pay milk producers in the current farming season in the Pacific nation, which goes from June 1 to May 31 next year.

The U.S. Department of Agriculture said the outlook for the sector has improved considerably with U.S. dairy exports from January through May 2020 up 12% to $2.7 billion from a year earlier.

The higher global price index and rising exports could also be positive for U.S. dairy farmers, who have been struggling with low returns.

In China, lockdowns of major cities and other parts of the country earlier this year to stop the spread of the coronavirus forced cafes, restaurants and many retail outlets to close. Those restrictions began to ease in March and April, and China’s economy returned to growth in the second quarter of this year, even as much of the world remains in recession.

In the first five months of 2020, China increased dairy imports by 6% to $5.3 billion from a year earlier, according to data provided by CEIC Data. Elsewhere in Asia, the easing of lockdowns has also helped normalize demand for milk products.

“Covid hasn’t been as bad for dairy as people feared,” said Nathan Penny, senior agriculture economist at Westpac Institutional Bank. He said many hotspots for the virus weren’t key importers of dairy products. Demand has also largely held up, enabling manufacturers and retailers to restock their inventories.

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