Utrecht, Netherlands—After a full year of pandemic and lockdowns around the world, the view of the future is clearer and more hopeful than it has been for months, according to Rabobank’s Global Dairy Quarterly Q1 2021, which was released this week.

Overall, economic growth is expected across much of the world in 2021, which is positive for dairy demand, the report noted. However, up to this point, economic strength in much of the world has resulted from various forms of fiscal stimulus and other government support. The phasing out of support provides some downside risk.

Rabobank is forecasting a 1.1 percent increase in milk production across the Big-7 dairy-producing regions in 2021. This is a decrease compared to the 1.6 percent increase in 2020 and represents a modest tightening of supply, which should help support markets as demand settles into post-vaccine balance.

Shipping woes are causing headaches for exporters around the world trying to move commodities internationally, the report pointed out. Strong demand for consumer goods coming out of China is driving robust demand for containers at Chinese ports.

Limited port personnel and other coronavirus precautions mean that, in most cases, it is currently more economical to unload containers and send them back to China empty, Rabobank’s report explained. This leads to a disconnect in global commodity prices, as exporters in some regions are forced to discount products to absorb elevated shipping costs and remain competitive.

“Demand will be in the driver’s seat in 2021,” the report said.

“Throughout the pandemic, global milk supply has been much less impacted than demand.”

Disruptions arose as consumers made significant shifts in their consumption patterns, which spilled through supply chains. Most of those shifts were abrupt and severe in the early stages of the pandemic, but coming out “should be much more gradual,” the report said.

Most economies will grow in 2021 compared to 2020. Rabobank is forecasting a 4.5 percent increase in global GDT for 2021, compared to a 3.8 percent contraction in 2020. The impact of widespread vaccination should be felt by mid-year, which will be positive for economic activity.

Rabobank’s report listed seven factors to watch in the second and third quarters of 2021:

Milk prices in China: China’s farmgate milk prices are at an all-time high, impacting global markets in some dynamic ways. So far in 2021, higher domestic milk prices have favored imported WMP, but the 21 percent jump in the whole milk powder price at last week’s Global Dairy Trade (GDT) auction swiftly narrowed the WMP import parity price discount to 4 percent, compared to the five-year average of 19 percent.

The high milk prices support the expansion of China’s milk sector, ultimately slowing import demand in the medium to longer term.

Economic recovery: Rabobank expects the global economy to grow by 4.5 percent, with 7 percent growth in China, one of the only economies to experience growth in 2020. Recovery is not without risk, though, and in regions like South America, it relies on maintaining a degree of fiscal stimulus.

Vaccine progress: Underpinning the economic recovery is the successful distribution of vaccines, which should provide the confidence to reopen many aspects of life that have been limited. However, there remain the risks that vaccines will hit distribution hurdles or that new resistant variants of the virus will emerge.

Shipping disruptions: Challenges with shipping container availability and pricing are leading to a divergence in prices for global commodities. The situation should resolve itself over the course of the second quarter but still presents a risk to trade flows and a headache for exporters in the near term.

Feed prices: Prices around the world are elevated. Most dairyproducing regions are above breakeven levels, but a drop in milk prices in this elevated feed market would pressure producer margins.

Food price inflation: Higher commodity prices will begin spilling through supply chains, reaching consumers. Promotions will likely return to retail outletss as brands and retailers will once again need to compete for consumers.

In a still-fragile economy, consumers may experience some sticker shock and become more price sensitive with their budget.

Brexit uncertainty is over: Few major disruptions occurred in the first post-Brexit months, with many companies working through elevated stocks in the United Kingdom.