Rabobank predicts an imminent and severe downturn and a global economy that will shrink by 2.6% this year followed by a bounce back in next year.
However, the recovery growth won’t compensate for the fall in for most economies, Harvey said in a video presentation to farmers arranged by DairyNZ.
The northern hemisphere has already developed a rapid imbalance in supply and demand for dairy products with milk dumping, supply chain build-up, storage subsidies and various aid packages.
The rally in world prices comes from that government support but Rabobank has incorporated a decrease of 15% when forecasting the New Zealand 2021 season milk price of $5.60/kg milksolids.
It expects global commodity prices to behave similarly to the global financial crisis in 2007-08 and skim milk powder, for example, will get close to the European Union intervention level of US$1850/tonne.
Already the EU has aided private storage of 45,000 tonnes of butter and cheese and direct intervention might occur later this year but Harvey doesn’t expect a stockpile rivalling the SMP one before 2015.
The United States Department of Agriculture has paid out direct income support to farmers and specified dairy products in food aid for the needy.
The biggest dairy market effects now were caused by the lockdown of food service consumption all around the world.
“Food service demand may start to recover in June but it will be slow and I don’t expect it to be back to normal before the year-end,” he said.
In the medium term the NZ farmgate milk price will be plus-$6/kg when underpinned by world prices for whole milk powder of US$3200/t.