Weak demand but a tightening of supplies could support prices – Rabobank update

Tuesday, 13 June 2023

According to the latest Rabobank update, weakening dairy demand is spreading across markets. High inflation globally over the past two years have held back demand. A notable exception to this is the USA, where consumer demand for dairy remains firm. 

Rabobank report that global milk production is still growing (but less so than previously) with growth mostly attributable to the USA. Oceania and South America continue to see lower output in H1 2023. They also highlight that dry conditions in South America and parts of Europe could also be a concern going into Q3. They have adjusted their 2023 milk production forecast downwards from year-on-year growth of 0.7% to 0.5%. Slower growth is primarily driven by stagnant output in the EU and a downward revision for US growth rates.

On the positive side, there has been some relief to farmers from lower input costs which are supporting margins. This is not universal, however, and in the USA milk prices have dropped more quickly than feed costs and this has retained pressure on margins.

They also report that the hotly anticipated return of Chinese demand may be misplaced as data from China’s National Bureau of Statistics shows that domestic milk production in China increased by 8.5% in Q1 2023. This has meant that Chinese dairy imports have fallen by 36% year-on-year in Q1 2023, which adds further downward pressure to global prices. 

Overall, slower production growth could provide some support for global market prices in Q3 and into 2024, Rabobank predict.

Image of staff member Susie Stannard

Susie Stannard

Lead Analyst (Dairy)

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