Dairy commodity markets in major producing regions have generally weakened from the COVID-19 pandemic. Specific factors, such as the reactivation of the foodservice sector continue to influence prices, creating diverging trends. This is the latest industry assessment by Maxum Foods, outlined in its Global Dairy Commodity Update. Fundamentals are likely to steadily worsen in the coming months as milk supply expands faster year-on-year and demand slows as recession takes hold, the UK dairy producer forecasts.

“The year-over-year declines in trade are getting smaller, aided by lower prices for fats and milk powders. The coming months will likely see a continuation of major trends seen here recently – weaker cheese and butter trade due to COVID-19 exposures, alongside improved powder demand at attractive prices,” Maxim Foods, Australia and New Zealand’s principal supplier and manufacturer of dairy ingredients to the food industry, stresses.

The “staggered reactivation” of foodservice sales is playing out, it further highlights. COVID-19 restrictions are expected to continue to ease but the re-opening of foodservice outlets (seen in the US, Australia, and parts of EU) will be disrupted by “second wave” outbreaks.

“When it comes to the outlets, we agree that the out-of-home consumption did not fully take off in 2020. The latest developments of the COVID-19 situation across the EU does not allow a positive outlook, neither for the out-of-home consumption, nor for the retail sales, since the economic effects of the crisis start to show in terms of purchasing power, despite the measures taken by the different governments, including a lowering of the VAT,” Alexander Anton, Secretary General of the European Dairy Association (EDA), tells FoodIngredientsFirst in comments on the subject matter.

As was the case on the way into dealing with this pandemic, Maxum Foods notes that UK government approaches will vary as they navigate choices between health and economic impact. “This will ensure a slow and bumpy recovery in foodservice channels while business and tourism travel will remain limited until well into 2021.”

Indeed, the UK government’s recently introduced obesity strategy focuses on a nutritional benchmark – banning ads before 9 pm and “buy one, get one free” deals for junk foods. Industry groups have recently decried this move as hard-hitting, arguing that such price-oriented promotions are essential for start-ups and small businesses seeking to grow and retain a market foothold. 

Global markets outlook
Milk production growth in the EU and US, meanwhile, is notably increasing, while domestic demand – sustained by strong grocery channel sales for cheese and butter – will be increasingly vulnerable to the effects of recession. The ongoing impacts of “trading down” by shoppers and reduced discretionary spending will weaken overall demand and increase price sensitivity.

“Indeed, in Europe, the milk production increased slightly in the first months of 2020 (compared to 2019) , but in the meantime, we see the normal seasonal tendency of decreased milk production that is reinforced in many of the important European milk production areas due to the weather conditions (draught) and the impact of the 2019 draught on feed quality,” Anton at EDA remarks.

Overall, global protein and fat prices are anticipated to be generally driven by the risk of stock-building in skim milk powder (SMP) and butter, as milk supplies expand and cheese producers try to match demand. “This risk is highly contingent on the sustainability of growth in cheese demand in Europe as well as prospects for increased exports, while acute tightness in the US cheese situation will gradually alleviate,” says Maxim Foods.

Oceania markets have been buoyed by sustained demand for whole milk powder from China. However, in this and other developing regions, butterfat and cheese demand are highly exposed to restricted foodservice demand, while buyers make “hand-to-mouth” commitments for ingredients, the supplier concludes.

Skim and Whole Milk Powder  
SMP and non-fat dry milk (NFDM) spot values were steady through July as recovery from the COVID-19 continues, notes Maxim Foods. Meanwhile, spot values of WMP have improved through July with New Zealand prices lifting through the month as global dairy trade prices jumped, now selling at premium to EU producers. Stronger Chinese demand at global dairy trade events in July saw values jump significantly. 

Cheese
In the US, Maxim Foods notes overall cheese demand will remain under pressure. There will be a slow recovery in foodservice trade with the dire COVID-19 situation likely to extend mobility restrictions. Government purchases are likely to continue but at much smaller volumes and income subsidies are expected to taper in Q4, affecting household incomes.

Butter
Global butterfat prices continue to converge, as Oceania markets weakened due to poor demand. EU and US butter and cream prices were steady with improved retail butter demand.

Whey
Whey product prices have steadied in both the EU and US after falling in June, as COVID-19 shifted production from cheese.

Maxim Foods highlights that whey complex generally remains in oversupply with weak demand for higher concentrate products and expanding cheese output in the US. Dry whey prices weakened recently despite the improved trade volumes.