Dairy markets are teetering at levels not seen since 2014

Weather-related issues decimated Oceania’s peak production, and margin erosion in the US and Europe stymied growth, resulting in a year-on-year deficit that was too deep for favourable milk production gains in South America to offset, reported Mary Ledman, Global Sector Strategist in Rabobank’s most recent Global Dairy Quarterly. As a result, Q4 2021 milk production in the Big-7 exporting regions is expected to decline by 0.3% vs. last year’s high comparable. This is the first quarterly year-on-year decrease since 2019.

According to the summary report, farmgate milk prices have followed commodity prices higher worldwide, with more potential upside in some regions. Still, rising costs of inputs, lack of labor, unfavourable weather, and questionable feed quality will limit the production response by producers.

Dairy exports slowed in response to logistic disruptions, rising transportation costs, and elevated commodity prices. Global dairy exports based on product volume ran 6% ahead of the prior year during 1H 2021, but slowed to 2% in Q3.

A slowdown in import demand from China is expected and is needed to cool 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.

Despite rising inflationary pressures, consumers have yet to face sticker shock for dairy products in most countries, supporting demand. That will not be the case in 2022, as higher commodity prices from 2H 2021 are passed through to consumers.

New variants of Covid-19, inflation, labor and logistic challenges, along with others weigh on the global economic recovery, with the potential for global dairy markets to teeter or totter, reported Rabobank.