The global dairy industry is facing supply problems in 2019. Causes vary by market, but include weaker economic growth, higher prices, lackluster retail sales, geopolitical conditions and weather challenges. Rabobank said that pressure in milk production will be felt throughout the first half of 2019, and it may hit its lowest numbers since 2016.
In particular, Rabobank called the Brexit divorce “clear as mud,” which is affecting the EU industry. And weather challenges in Argentina and New Zealand have started adding to supply pressure and will continue to do so over the coming months.
A 2020 recession?
According to Rabobank, data from January and February indicates that the US saw lower sales in volume terms for yogurt (down 2%), processed cheese (down 3.9%), and fluid milk (down 4%). But natural cheese and butter both increased, 3.8% and 4%, respectively, driven by lower retail prices.
Natural cheese prices were down by 2%, processed cheese by 0.2% and butter by 1.3%. Yogurt and fluid milk prices remained flat compared to last year. Rabobank projects the US will have a small exportable dairy surplus in the first half of 2019; production will pick up slightly throughout the year and domestic demand will feel more pressure.
The US may “miss out on the full upside in 2019 global dairy market prices” due to “adequate domestic supply coupled with trade challenges” and the geopolitical climate. With the US fighting so many trade battles, the report suggests the US may have to find “new homes for the additional dairy.”
“Trade war tremors continue to reverberate across continents as US tariffs remain firmly in place. Any 'trade deal' between Trump and Xi continues to be pushed further out into the year. Global economic growth is looking gloomier for the coming years – we anticipate a US recession in the second half of 2020,” Rabobank said.
Pulling from USDA data, the report expects retail dairy prices to rise by 2.5% this year after eight years of being below the historical rate (+2%). Higher retail prices, slightly weaker economic growth and a high food service demand will contribute to lower domestic demand growth for US dairy products in 2019.