German dairy outlook remains positive for 2021

Overall the German dairy industry is well positioned to survive a potentially turbulent 2021, according to three investigators, Douglas Michael Robinson, Chrisitan Janze and Ramona Weinrich, at the Georg-August-University in Göttingen, who evaluated the German dairy industry in 2020 on the backdrop of the results from 2019 and 2018.

Their report, “The dairy industry in Germany – review 2020 and outlook 2021,” notes that the German dairy industry was not as badly hit as other food sectors in 2020, although it also suffered from Covid-19 restrictions. Farm milk prices remained slightly below the 2019 level, and milk raw material prices also remained relatively stable.

While the prices for skimmed milk powder were high in the beginning of 2020, the average prices for butter and cheese were below average in 2019.

In April, the closure of the catering industry could have hit the dairy industry harder for products such as butter and cheese, but private storage aid stabilised the EU market. For example, private storage aid has been established for butter, skimmed milk powder and cheese in order to cope with the difficult market conditions that prevail.

The assessment of the business situation remained clearly negative in May and June, but in September it recovered and in October it even rose. How the second lockdown of 2020 will play out remains to be seen.

In the international market there was increasing demand from China for dairy products such as whole milk powder, but this does not have a large impact on German manufacturers, as China’s main supplier for dairy products is New Zealand.

The first quarter of 2020 was a good quarter for sales in the dairy industry, with sales up 4.3% over the same period in 2019 to €7.16 billion. The reasons for this are mainly in the month of March, when demand increased enormously and sales were €240 million (+10.5%) above that of March in 2019. As in other areas of the food industry, this increase was driven by strong consumer demand.

For 2020 total sales will remain at a similar level to 2019 and will amount to around €29 billion, as the first quarter of 2020 brought such good results.

However, export sales for German dairy deteriorated in 2020. In the first quarter they increased by €150 million (6.3%), but decreased by €70 million (2.7%) in the second quarter. When the catering trade in Europe reopened in June, exports developed positively (+3.1%), but in the third quarter exports fell by €60 million (2.4%).

The university investigators expect the fourth quarter to be negative as the second quarter. Some milk raw material prices were well below the comparable quarter of 2019, which is why the investigators expect sales of €2.23 billion (-2.7%) for the fourth quarter.

Overall, the export quota will decrease by 0.9 percentage points to 32.3% in 2020.

After the low prices for dairy farmers in 2020, no improvement is in sight for 2021 either; this could lead to further negotiations with the dairies to raise the payout prices.

According to Rabobank, milk deliveries will increase worldwide, at least until the second quarter of 2021. This could depress milk prices further.

It remains to be seen, when the catering will be able to run normally again, but this is rather expected for the second half of 2021. Although vaccines are now approved, it will take months to vaccinate a sufficient part of the population, so this market can normalise.

Dairy raw material prices are still as high as they were in 2015 and 2016, when the dairy industry’s turnover fell sharply. But there is pressure on politicians to ease the downward trend in prices. The increase in raw material prices is limited due to a forecast of slight increase in global milk deliveries in the first half of 2021.

The export market could pose a challenge in terms of development in the European internal market, as many EU countries are suffering from the Covid-19 pandemic even more than Germany.

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