The world market for dairy products will remain stable until the middle of 2020, however, the likely recession in the second half of next year.
In its quarterly report on the dairy market, Rabobank showed and evaluated the symptoms of decline in activity and confidence in the market as among the milk producers and buyers.
As noted, the exchange of dairy products traded on a global scale, showed an increase of only 8% in the second quarter of 2019 due to the reduction of production. In the first quarter of 2019, for comparison, the increase was as much as 18%.
As you approach the new year, Rabobank sees the accumulation of problems, so tension in the market is generally higher than previously assumed. More and more manufacturers are constrained in their actions, but demand remains stable despite trade and economic problems.
“The economic risks highlighted in our previous quarterly report on the state of the dairy market, now become a reality. So, China saw the weakest GDP growth over the past 30 years that has affected the markets of Southeast Asia, — says senior analyst of the dairy market, Rabobank Tom Bailey (Tom Bailey). — Similar difficulties there are in the EU, as in Germany, the economy declined in the second quarter, if we compare the quarterly figures year-on-year, and this is a Wake-up call for everyone else, especially in view of the forthcoming Brexit”.
In addition, the symptoms of the economic problems seen in the actions of regulatory bodies in different countries, and in purely statistical terms. In the US, for example, the number of cows continued to fall in August, after dropping by 82 thousand heads in July.
“The European Central Bank reacted to the state of the economy with a rate cut of 0.5% and announced indefinite quantitative easing (monetary infusion into the economy — ed.) in the amount of €20 billion per month to reduce the risk of a recession. In the United States also announced the reduction in the rate of” — lists recent significant economic events Tom Bailey.
Many economic organizations have figured out the possibility of a global recession in the second half of 2020, and Rabobank also notes that normally during a recession, the prices of dairy products fall by 20-40%. Even with potential economic problems on the horizon most of dairy markets in the world remained stable all the year 2019.
Rabobank notes that current higher prices for dairy products may stabilize in the second half of 2019 and early 2020 due to the increase in milk production by 1% in the next 12 months.
Against this background, trade war United States and China gradually fade. So, China is partially extended old import tariffs on American goods. However, American consumers may feel the effect of the previous rounds of tariff increases during shopping in supermarkets.
China is still trying to cope with African swine fever and significant loss of livestock because of this. It can affect the global market of animal protein as a whole and change it for many years. However, the growth of prices for milk in China recently exceeded the price of beef.
General slight recovery in dairy production in China coupled with significant import growth and a stable consumption led to the accumulation of stocks in warehouses. Therefore, according to Rabobank, in the second half of 2019 China will import significantly less.
“Trade war remain a headache for logistics dairy exporters, although it probably will not impact significantly on the trade balance in the next 12 months. The global dairy market has become more liquid in recent years, which gives the opportunity for flexibility in supply. Overall, the global market will remain stable in the coming six months while the supply does not exceed demand — then we will see pressure on prices,” they concluded in the quarterly report from Rabobank.