Semi-lockdown a cold shower for dairy market

The most drastic measure that Prime Minister Mark Rutte announced last night (October 13) is the mandatory closure of cafes and restaurants. For at least 4 weeks, but possibly longer. That chance of almost a month is plausible, given that Rutte noted that a vaccine will not be available until next year at the earliest. Moreover, it is only October, winter has yet to start, spring 2021 is still far away.

For the time being, the dairy sector must deal with the loss of catering demand in our country. Fortunately, we export large volumes. But there are also restrictive measures in place in other countries that are slowing down demand. Germany (and many other countries) also applies restrictive measures in the catering industry, although eating out is still possible there. Provided you wear a face mask.

Relapse after recovery?
Although tightened measures never materialize, they come at an inopportune time for the dairy market. The milk supply trough is almost behind us, which means that milk volumes in the Northern Hemisphere will soon rise again. Production is also ahead of last year, Brussels expects a growth of 2020% in the European milk pool in 1,5. Moreover, this growth in milk production is expected to continue into 2021.

In addition, the global dairy market has been in a better flow in recent weeks. The corona hit in March had not yet been overcome, but there was room for higher milk prices without realizing fatters in their thirties. Not only in the Netherlands, but also in surrounding countries such as the United Kingdom and Ireland.

Less impact than in March
When the lockdown was announced in March, it was a huge blow to almost all markets. Oil and stock prices plummeted, demand for chip potatoes collapsed and the dairy market even had its worst week in living memory. The shock is less great now. The extent to which price pressure will now arise will become clear in the coming weeks. Moreover, the situation will differ per manufacturer. But there is no doubt that the demand for fresh dairy and specialties (such as cheddar and mozzarella) is declining in the home markets.

Normally we are now entering the period when the traditional Christmas demand is slowly starting to arrive. Cream and butter, for example, can usually benefit from this. Although the butter market has felt firmer in recent weeks, there are underlying factors that are putting pressure on the price. Take, for example, the intervention stocks that emerged after the first lockdown. There are now around 60.000 tonnes in private storage, which will be back on the market later this year. And apart from that, butter is widely available in Europe.

Eyes on export outside Europe
Sales of dairy commodities outside Europe will be extra important this winter to keep sales going. There, European companies face formidable competition from the United States, which has been benefiting from the weaker dollar since the summer. Dairy superpower New Zealand is also working towards the seasonal peak, with milk production figures well ahead of last year. And there too, domestic sales opportunities are probably more limited due to corona measures. In short: the old normal on the dairy market is still far away.