Global milk supply growth has slowed YOY
Year-on-year milk supply growth across the Big 7 (the EU, the US, New Zealand, Australia, Brazil, Argentina, and Uruguay) exporters for Q3 2018 has slowed down to estimates of 0.4% compared to the same period in 2017, the lowest since 2016 according to Rabobank Research dairy report Dairy Quarterly Q3 2018: Step by Step.
Poor weather conditions in Australia and northern and western Europe resulting in shriveled pastures, together with the Brazilian truckers’ strike and expensive feed in Argentina have all affected global milk production. However it is at odds with the strong start to the New Zealand milk production season.
Global dairy commodity markets are mixed, with variable results across regions and products. Most Oceania-origin products have lost ground as buyers keenly await the full extent of the favourable New Zealand spring flush, creating a lack of buyer urgency.
“Ultimately, however, milk supply will grow only modestly year-on-year during the coming 12 months, driven by tight margins on-farm and lingering effects of adverse weather,” says Emma Higgins, dairy analyst. “Surplus dairy available for export will significantly tighten for an extended period, which will provide some upside to pricing across the dairy complex.”
With globally-rising forage costs, farmgate milk prices will need to move higher to offset the cost impact and improve farmer margins in order to support milk production growth.
Chinese dairy product imports are expected to increase in 2H 2018, which will help absorb some of the milk supply growth from New Zealand. The full extent of the trade war fall in terms of trade and currency impacts is likely to play out in 2019 and beyond. A key risk is the strong US dollar, which will reduce the purchasing power of key importing regions.