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Rabobank's Global Dairy Quarterly Q3 2021: the Delta blues

15 September 2021
Rabobank

Dairy demand has proven resilient to all but the most extreme forms of pandemic-induced lockdown so far. While some regional disruptions will continue to occur and uncertainty remains, the potential for major global demand shocks is limited. Still, lockdowns are often strict and extreme in emerging markets in Southeast Asia, and with less government aid expected this year, longer-lasting economic impacts may take hold.

If you are a Rabobank client, you can download the full report

Farmgate milk prices are generally on the high side across much of the world, but rising costs of inputs and downside risk in milk prices are giving many producers the blues. US dairy farmers are already experiencing relatively lower milk prices following a year of strong production growth, leading to a saturated milk market.

Logistics disruptions are leading to higher costs but not impacting the fundamental underlying supply and demand. Exports have remained strong throughout the pandemic, and buyers have become more opportunistic, preemptively stocking up on products when containers are available. In the long run, however, these costs will add up and potentially curb demand.

A slowdown in import demand from China is expected to begin in the second half of 2021 and could weigh on global dairy commodity prices. Supply is outpacing demand in China, with domestic production growth combined with growing inventories. These factors point to the potential for a period of destocking later this year and into 2022.

Global dairy commodity prices have fallen through Q2 and are expected to trade within a narrow range through Q4 2021. Extending into 2022, downside risk is more likely if importers fail to absorb reduced demand from China.

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