Demand outlook for 2019?
Geopolitical factors including Brexit, international trade and tariff disputes driven by the Trump Administration and concerns over the global economic growth are all worrying economic and trade commentators.
These concerns certainly affect dairy market sentiment to a point.
However, lower supplies in the EU, which have dipped into negative territory over the autumn, have continued to moderate output growth expectations from the bloc. The EU Commission reports a likely production increase of 0.8% for 2018 over 2017, and predicts only 0.9% increase in 2019. Their long term prediction is for moderate growth of 0.8% per annum to 2030 as environmental factors become more of a restraint in Europe.
Predictions for global milk output growth for 2019 are for no more than 1% increase, a significantly lower level than seen through 17/18.
Key of course is the supply demand balance, and supplies have trended towards better matching demand growth in recent months. However, we will have to see the extent to which the headwinds outlined above may moderate demand.
In its Quarterly Dairy Report published in December, Rabobank predicts “double digit” demand growth from China for dairy products, due largely to excessive production costs restricting domestic output.
Rabobank also expresses the view that buyers may be taken unawares by a more rapid than expected dairy commodity price recovery in the first half of 2019, based on relatively low privately held stocks, all the more so now that the intervention cupboard is getting very bare!
Domestic dairy demand in most of the developed world remains solid enough, especially for butter and cheese which tend to be traded more domestically than on export (Ireland being an exception to this rule for obvious reasons).
Oil revenues for some emerging countries will have suffered in the last few months as crude oil prices went from near $80/barrel to around $55-60 today, and this will undoubtedly play a part in their food import affordability.
The long-term demand outlook – which looks beyond the shorter-term geopolitical difficulties outlined above – remains very positive, with global population and income growth in emerging countries expected to continue to drive dairy demand growth, in the context of more moderate global output growth.
So, stability on milk prices is well justified for now, but could we see justification before long for more positive moves by our milk purchasers? Who knows?
CL/IFA/11th January 2019