USDEC: These Eight Factors Will Drive 2020 Global Dairy Markets

January 15, 2020

Jim Dickrell

The U.S. Dairy Export Council (USDEC) says eight factors, or “signposts,” will drive global dairy markets in 2020.

The list was compiled by Alan Levitt, USDEC vice president of market analysis and communications and William Loux, a USDEC global trade analyst.

1. The Impact of the USMCA and Japan trade deals. “This year, we will get our first inklings of their benefits,” says Levitt. The USMCA has the potential to generate new sales to Canada and to close a loophole that allowed Canada to distort global milk powder trade, he says.

Canada was still exporting 4,000 tons of skim milk powder per month during much of 2019, which was down from nearly 6,000 tons per month in 2017 and 2018. But current shipments are still 4 times what the country was shipping prior to its implementation of its Class 7 program.

The Phase 1 trade deal with Japan could put the U.S. on more equal footing with Europeans, but much depends on Phase 2 negotiations. Japan is the largest cheese buyer in the world, notes Loux, and access to that market is critical to further U.S. cheese export growth.

2. Depletion EU intervention stocks. The European Union had amassed a mountain of milk powder stocks in 2015, following Russia’s trade embargo in 2014. Those stocks are now, finally, depleted. USDEC analysts believe EU exports could be down by more than 100,000 tons this year compared to 2019. “USDEC expects U.S. suppliers should gain most of that business,” says Levitt, “[because} the United States is the only supplier capable of meeting that kind of volume.”

3. Progress with the U.S.-China trade war. “Tariff rollbacks would spark a welcome recovery in U.S. dairy exports to China,” says Loux. The loss of sales to China between January and November is equal to about 1.3% of total U.S. milk solids produced during that period (or almost 10% of U.S. milk solid exports.)

4. The status of African Swine Fever (ASF). It’s impossible to overstate the impact of ASF that swept through Asia, resulting in the loss of a quarter of the world’s pig population. “For the world’s whey suppliers, that meant a sharp decline in demand for feed-grade whey products in 2019,” says Levitt. China, which suffered the largest losses to ASF, expects to begin restocking efforts this year, which could and should trigger a rebound in whey consumption.

5. Asian dairy appetites. Since 2016, China and southeast Asia have accounted for more than three quarters of the growth in world dairy trade, so their buying habits are critical to future growth, says Loux.

6. Buyer willingness to spend more for dairy. Both buyers and consumers have balked with whole milk prices in Oceania have climbed above $3,200 per metric ton ($1.45/lb) for whole milk powder, or $2,950/ton ($1.35/lb) for skim milk powder. “Prices are already in that neighborhood in the face of tight global supply,” says Levitt. “It remains to be seen if buyers get anxious enough and have the willingness to push prices further.”

7. Rebounding milk production. While global milk production is rebounding, it’s forecast to grow only 1% in 2020. Growth in global consumption supports about 1.5% growth in supply. “[Supply] growth below 1.5% as should be the case in 2020, the market is in better balance,” says Loux.

8. Global economic growth and geopolitical flare-ups. Economists project 2020 global economic growth to be better than last year, but 2019 growth was weak. Oil prices remain relatively low, trending between $53 and $63/barrel, well below the 2018 highs of $75/barrel. But heightened trade tensions, hot spots of social and political instability, and subdued investment prospects all create uncertainty in the year ahead. “…an economic slowdown that hits middle class buying power and development would likely hinder export gains,” says Levitt.