Commodities Sector Report

Sector Report (Milk and Milk Products) by Oliviero Maria Sacchet, 27 November 2020



The aim of the following report is to highlight the main components of the dairy sector composed by milk and milk products. The report analyzes the main products of the industry and the main index. In addition, the key players are listed with the respective market shares. However, several firms are not listed, and the quantitative analysis is focused on the three listed companies: Nestle, Fonterra and Saputo.

Overall, the sector is resilient and very strong but in the following years it could be damaged from the group of complementary products that are more engaging for consumer thanks to their aspect of healthiness and technologies.

The actual economic situation did not affect the milk and milk products sector apart from two months.

The ETF linked to the milk sectors are general and so its area of interests is more the general agriculture rather than the specific dairy sector but the two listed in the final chapter have a strong concentration of milk firms and index in the composition.


The dairy market is a high valued food sector that includes a variety of sub-sectors. At the end of 2019 the total market value was US$ 718.9 Billion. During the 2020 several industries were affected by the global pandemic. In contrast, the forecasts for the sector show a positive trend.

The milk and milk products sector is the biggest one in the dairy group and it is showing a big potential. The global milk production in 2020 is predicted to grow by 1.4 per cent reaching 860 million tones.

The sector of milk and dairy products has a central role in the global food industry and dairy has a crucial function in the growth of economies. However, recently, the sector was influenced by a modernization of the product and an increasing in the global trade.

Milk and milk products are necessary, and this led to a great support for the global demand, that can be easily understood in modern times thanks to three drivers: rising incomes, growth of population and the importance of health. In addition, the market has faced a revolution in the production with a modernization and with the implementation of technologies.

The main products in the sector are:

  • Butter
  • Cheese
  • SMP (Skimmed Milk Products)                                                                 
  • WMP (Whole Milk Products)

The main index for the dairy and milk sector is the FAO DPI (Dairy Price Index). From an historical analysis it is possible to observe four positive trends and three negatives. From 2002 to 2006 the average was 64,1 followed by a positive trend between 2007-2008 with an average of 127,36. From 2010 to 2014 the average was 124,92 followed by an average of 84,7 in 2015-2016. The last data show an average of 102,6 from 2019 to the present days (chart 1).


Future risks that create uncertainty are basically two: weather and complementary products.

Weather is the most relevant factor in this industry. Dairy products are indeed influenced by climate conditions. Consequently, weather is a structural problem that cannot be avoided. To curb these effects, the dairy industry is evolving and adapting its production systems to new technologies bound to modify this sector. In the future these innovations are believed to lead to a more efficient production, despite weather conditions.

The second main factor of uncertainty is the whole world of dairy complementary products. In recent years a new healthy mentality is changing the preferences of consumers, that often now prefer complementary products such as plant milk (almond milk, oat milk, soy milk…).

The customer-base of the dairy sector is basically very broad since dairy products are considered a staple food.

For a more detailed division of the sector and sub-sectors refer to the next chapter.

FirmsMilk intake in million tons of milk equivalentGeographyCompetitive Advantages
Dairy Farmers of America29.2USASustainability
Fonterra23.7New ZelandRelationship with farmers
Arla Foods13.9DenmarkCost Efficiency
FrieslandCampina13.6NetherlandsLow Cost
Saputo9.8CanadaLow Cost


Fonterra21.9189.210.05879 mln4.95 bn
Nestle6.027.092.974185 mln322.5 bn
Saputo18.3526.190.13930.1 mln11bn

Fonterra, Nestle and Saputo are the three key listed companies in the milk and milk products sector.

Fonterra has the biggest amount of milk intake in million tons (23.7) and a capitalization of 4.95 billion. The firm registers an Earnings Before Interests and Taxes of 829 million. Fonterra is a stable company with a Beta of 0.17, consequently it has a lower volatility compared to the market. The Dividend is 0.05, so it prefers to reinvest its revenues instead than distributing them to the shareholder.

Nestle is another big player in the sector and the biggest for capitalization ($322.5bn). However, its business is more diversified than the others. The beta’s value is 0.29 and so it has a lower volatility compared to the market but still higher than Fonterra.

Saputo has a capitalization of $11bn and a low dividend ($0.13). The beta is the highest compared to the others but, above all its value is low (0.46).


Despite COVID-19 the milk and milk products industries are forecast to grow by 1.4 per cent reaching 860 million tones by the end of 2020. Moreover, as said before, the sector is strongly influenced by weather conditions. The positive trend is reflected on the increasing in key milk producing countries. India’s production is growing thanks to a favorable monsoons season while in the European Union and the United States of America the positive trend is due to government assistance and yield improvements that are keeping margins stable. China and Russia Federation are facing an expansion in the dairy industry as well as Oceania thanks to favorable weather conditions. Instead, Brazil production may decline due to a reduction of internal demand and economic contractions.

The world trade is forecast to grow to 70 million tones. This positive trend is mostly linked to China and its high level of imports due to the resurgence of economic activities. However, a decline in imports is affecting Japan, Mexico and Philippines due to economic downturns.

Prices (FAO Dairy Price Index) was affected by the COVID-19 situation between February and May 2020 due to a fall in global import demand. However, after May, prices started to increase and in October the index was above pre-pandemic level, mostly due to a massive import demand from China. More specifically, SMP prices rose the most followed by butter, WMP and cheese.


The ETF for the milk and milk products sector are: DBA (Invesco DB Agriculture Fund) and MOO (Market Vectors Agribusiness ETF).

The first one is DBA issued by Invesco in 2007 and is one of the most popular options to achieve an exposure on agricultural commodities. The ETF is diversified on various agricultural resources.

The second one, MOO, was issued in 2007 by VanEck. The Market Vectors Agribusiness ETF replicates the price and yield performance of the DAXglobal Agribusiness Index (DXAG). Actually, the AUM (Asset Under Management) is $743.9 mln. The volume is 43,625 and the ETF has 9.8 mln shares. The actual price for MOO is $75.92 and it is the highest in the past 12 months.

I would recommend MOO rather than DBA because it is more focused on the milk and milk products industry and its performances are higher. In addition, while analyzing the historical data we can observe that it is more resilient and stable during economic contraction. My personal suggestion would be to buy MOO at a target price of under the level of $65 that is the average in the last 12 months, during the month of January. The index shows cyclical trend and in January the prices are likely to be lower.

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