Rabobank flags falling milk production, forecasts ‘moderate price declines’

The milk outputs of the Big-7 dairy export regions are projected to decline by 1.1% in the second quarter, Rabobank’s quarterly dairy updated revealed. This means milk production will have decreased for a fourth consecutive quarter.

What is driving the drop in production? Rabobank analysts cited higher feed costs – with corn expected to remain above 7USD/bu into ‘at least’ Q2 2023.

Weather related issues are also souring milk supplies, with La Niña conditions in the Pacific are expected to increase in late fall.

However, Rabobank believes the market has reached peak milk powder prices. “It appeared that global milk powder prices peaked during 1H 2022. While milk production is in the middle of a significant slowdown… weakening demand expectations are creating the scenario for some moderate price declines in dairy commodities,”​ the analysts suggested.

What’s hitting consumption?

Global consumption is down as Chinese oversupply drives a reduction in dairy imports, Rabobank noted. The commodities experts suggested domestic supply was up 8% year on year, while the country already has high carry-over stocks from last year. This is ‘colliding’ with weaker demand related to COVID lockdowns. “This is creating the perfect condition for reduced Chinese dairy imports,”​ the report suggested.

Inflationary pressures are also likely to trigger lower demand in both rich and poor countries as consumers face inflation levels not seen since the 1970s. “While developed country consumers are usually more resilient to higher prices, this time around the impact on energy and fuel prices are severe and are resulting in changing consumer behavior,”​ Rabobank noted.

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