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Market Commentary

There appears to be less optimism around hopes of a “U-shaped” economic recovery, as economists are beginning to conclude that the world economy is facing into a longer-term recession.

The IMF World Economic Outlook is forecasting that the world economy will shrink by 3% this year with the Eurozone contracting by 7.5%. The IMF has predicated GDP will decline in many of the significant global dairy importers such as Mexico, Algeria, Japan, USA, Saudi Arabia and South Korea.

European quotations have stabilised following significant falls. The EEX Butter Index is at €2,627/tonne with the Dutch quotation lower at €2,570/tonne (down €700/tonne on last month). The SMP Index is at €1,925/tonne (down €300/tonne on last month). Prices are remaining above the intervention thresholds.

The collapse in the foodservice market has been offset by stronger retail demand, with the US having a greater dependence on foodservice compared to the EU. Processors in the US are asking suppliers to curb their production with reports of milk dumping.  The gradual lifting of lockdown restrictions will be important to support demand.

EU milk flows are up +1.2% year to date plus higher milk solids especially in Germany, France, the Netherlands and Poland. There are recent reports of extremely dry weather in the Netherlands, Germany and Sweden. US production is up +1.7% but may moderate due to impact of COVID-19. New Zealand collections were affected by drought with their season coming to a close.