NETHERLANDS, 15 June 2020: Better soil moisture and feed quality, along with improved payouts to farmers, helped improve milk supplies. However, the lockdown from the second half of March has led to supply-chain disruptions, impacting demand for dairy products in the B2B channel, RaboResearch Dairy Quarterly titled 'Waiting for the Dust to Settle' said.
Farm gate milk prices have gone down by over 25 pc in India
Disappearance of the unorganized channels (individual/ intermediary) has pushed farmers to supply more milk to the organized channels (coops and private companies). The price of raw milk in Maharashtra has come down from over INR 30/liter (USD 0.43/liter) at the end of February to INR 22/liter (USD 0.31/liter) at the start of April.
Farm gate milk prices are expected to remain at lower levels in the next quarter due to COVID-19 challenges.
Demand for milk and dairy products has remained high
The shift from unorganized (loose/unprocessed) to organized (processed, packed) channels has accelerated, aided by supply-chain disruption due to Covid-19. Demand for packed liquid milk has remained strong. Dairy products with a higher share of B2B and foodservice sales (like cheese with a 50% share) have been significantly impacted. Premium categories, like ice cream, have also seen a significant impact in sales (more than 50%) due to supply-chain disruptions.
Local milk powder prices have fallen by 25 pc to 30 pc
Skim milk powder (SMP) prices have come down by 25 percent to 30 percent from INR 320/kg (USD 4,500/mt) in March to INR 210/kg (USD 3,000/mt). Some companies are even selling at prices below the INR 200/kg mark (USD 2,850/mt). Rabobank is expecting SMP prices to remain at these levels over the next quarter because of increasing SMP inventory.
Rabobank expects SMP exports to remain negligible for FY20 (April-March 2020)
Trade activity in dairy has remained muted with insignificant exports and imports. Official full year numbers are not yet available.
Companies are expected to show revenue growth in FY20 (April-March 2020)
Full year numbers (including last quarter) have not yet been published by the listed dairy companies, but most of the companies have posted strong revenue growth in first nine months, and the last quarter performance is expected to be modest, factoring in the impact of the lockdown in the second half of March.
Increasing SMP inventories will lead to lower SMP prices
This will mean lower income for dairy farmers due to low farm gate milk prices. A shift in product mix in favor of SMP and ghee/butter will lead to increases in the inventory of SMP in the country. This will continue during the lockdown period.
Closure of foodservice, which is not expected to come back to normal in the coming months, will also support this trend of conversion to SMP.
SMP prices are expected to remain depressed in the coming months. This will keep raw milk prices depressed and strain the profitability of dairy farmers.
Dairy Quarterly Q2 2020: Waiting for the Dust to Settle
Milk production is forecast to continue expanding across the dairy-exporting regions, despite weather-related issues, lower milk prices, and efforts to bring supply back in balance with demand in many areas, according to the latest RaboResearch Dairy Quarterly titled “Waiting for the Dust to Settle.”
“The Northern Hemisphere has experienced a rebound in milk and dairy product prices toward the end of Q2, but it may be too soon to call this a true recovery,” writes Ben Laine, Rabo Research Dairy Analyst.
“Much of the price support has been driven by government aid that will likely slow in the months ahead. The upcoming US presidential election could extend heightened levels of support in the US,” Laine adds.
Many dairy markets are still dealing with imbalances from demand destruction due to government lockdowns. The heightened retail sales and lower foodservice sales will begin to converge, returning to a more normal balance, but it will take time, and there will be limitations that will prevent a complete return to previous norms, especially in foodservice sales.
Global outlook now is not nearly as dire as it was at the height of the Covid-19 crisis
Government intervention through dairy purchases, direct payments, and storage aid, combined with the reopening of many foodservice outlets has helped jump-start demand. We are on a path toward recovery, but we are not out of the woods.
With the rapid rebound in cheese prices in the US, and similar but less extreme increases elsewhere, it may be tempting to assume we have recovered and not look back. But, even if markets have moved back toward, or in some cases above pre-Covid-19 levels, it does not mean that our expectation for the future should be the same as it was pre-Covid-19.
Retail sales will eventually return to a normal trend over time
However, the extent of the lockdown may have been long enough to form new habits, and some segments of consumers may continue preparing more food at home on an ongoing basis. The renaissance of home cooking may also extend to home entertaining, at least temporarily for some demographics.
