Global markets ‘teetering’

Milking it: Rabobank’s Michael Harvey says Chinese demand for dairy inputs is expected to slow down in 2022 and this will help cool global prices in the face of limited supply-side increases.

Global dairy markets are “teetering” at low milk production levels not seen since 2014, Rabobank says.

In its just-released Global Dairy Quarterly report, the agribusiness bank said weather-related issues had decimated peak milk production in New Zealand and Australia, while supply growth had also been stymied in the United States and Europe by squeezed profit margins for producers.

This has resulted in a year-on-year global milk production deficit that is too deep to be offset by favourable milk production gains seen in South America, the report said.

Rabobank said — after nine consecutive quarterly increases — combined global milk supply growth in the major dairy-exporting regions halted in quarter three this year and would dip into negative territory in quarter four.

The report’s co-author, Rabobank senior dairy analyst Michael Harvey, said combined quarter four milk production in the big seven dairy exporting regions — New Zealand, Brazil, Argentina, Uruguay, European Union, US and Australia — was expected to decline by 0.3 per cent compared with quarter four last year.

This will be the first quarterly year-on-year decrease since 2019.

The report said farm gate milk prices had followed commodity prices higher worldwide, with more potential upside still to come in some regions.

Still, rising costs for inputs, labour shortages, unfavourable weather and questionable feed quality would limit the production response by producers, it said.

Global dairy exports have slowed in response to logistic disruptions, rising transportation costs and elevated commodity prices.

“Global dairy exports based on product volume ran seven per cent ahead of the prior year during the first half of 2021, but slowed to one per cent in July and August,” the report said.

Mr Harvey said a slowdown in demand for dairy inputs from China was expected and was needed to cool global prices in the face of limited supply-side increases.

“Chinese buyers are torn between the bullish sentiment outside China and the current weak fundamentals within China to decide whether, when, and at what price levels they should return to the market,” he said.

Despite rising inflationary pressures, consumers have yet to face “sticker shock” (where higher prices become a deterrent) for dairy products in most countries, the Rabobank report said, and this was supporting demand.

That would not be the case in 2022, it said, as higher commodity prices from the second half of 2021 were passed through to consumers.

In addition, Mr Harvey said, new variants of COVID-19, inflation, labour and logistic challenges, along with others weighed on the global economic recovery with the potential for global dairy markets to “teeter or totter”.