In its Global Dairy Quarterly Q4 2020: To new beginnings, the bank says global milk production growth is, however, projected to moderate in 2021 after a strong 2020, with forecast growth of about 2.7 billion litres of milk equivalent compared to 4.5bl in 2020.
Rabobank dairy analyst Michael Harvey said the milk production growth across the global Big-7 dairy exporters (New Zealand, Brazil, Argentina, Uruguay, the European Union, the United States and Australia) had surprised in 2020 – growth in liquid milk equivalent (LME) was at its highest since 2017 – but that supply growth would now slow across all export regions.
“The EU and South America should see the largest slowdowns next year, with output in Oceania being flat,” Mr Harvey said.
As seasonal production slows in the northern hemisphere, he said demand projections looked to remain stable – and that strengthening retail performance in the wake of COVID-19 would further support commodity prices.
“Commodity prices remain at higher levels after a rally in recent months, and we expect these prices to remain into 2020,” Mr Harvey said.
“In Europe and the US, previous dairy stockpiles are reaching commercial channels, which is further positive good news for prices.”
The report said globally, several factors will boost consumer sentiment in key dairy markets in 2021, including the advanced states of several COVID-19 vaccines, less political uncertainty after the US election and forecast economic growth in most regions.
The report said milk production had grown in all Australian regions, except Queensland.
Although with the season having passed its peak in October, Rabobank has trimmed the full-year production growth forecast slightly, expecting growth to remain at two per cent and reach 8.95bl.
With favourable seasonal conditions and cheaper feed bills after the recent bumper grain harvest, Mr Harvey said Australian dairy farmers were well-placed to enjoy consecutive seasons of dairy farm profitability.
Accordingly, the latest Rabobank Rural Confidence Survey, released this month, reported a strong lift in Australian dairy farmers’ confidence levels and an improvement in investment intentions.
The limited national dairy herd remains a constraint on milk production growth, with cull cow prices still elevated.
“Culling has slowed more recently, but we’ve come off an extended period of higher culling during the drought and rebuilding the herd – and maximum production – will take time,” Mr Harvey said.
The report said Chinese dairy imports were set to decline in 2021, with milk production in China projected to increase at a strong pace of around 6pc year-on-year through early 2021, increasing to 6.5pc in the second half of the year.
“This is based largely on a short-term push from strong year-to-date Oceania heifer exports to China, however long-term production growth will depend on continuous investments in dairy on the back of improved profitability,” Mr Harvey said.
Meanwhile Chinese dairy inventories have accumulated during the second half of 2020 and LME imports are expected to see a double digit drop in 2021.
Rabobank retains a demand growth forecast of 9pc year-on-year in the first half of the new year, slowing to about 3pc year-on-year in the second half of 2021.
“Higher milk production and moderate demand growth suggest weaker dairy imports in 2021 and higher domestic inventories in China could also potentially limit trade,” Mr Harvey said.
The report said economic recovery and the impact of less government intervention will determine global dairy demand strength through early 2021 – with governments across the world inevitably having to scale back both dairy purchases and also cash payments supporting consumers.
“A key reason for strong demand and healthy dairy trade during the pandemic has been government action in many countries during 2020, however, an economic recovery supported by a COVID-19 vaccine would help drive demand in these vulnerable countries,” Mr Harvey said.
Impacts of the second COVID-19 wave and lockdown across Europe and the US could have a significant effect on foodservice demand in quarter one 2021, if extended.