What will happen with dairy markets in 2019?

ADHB Dairy has published its outlook for dairy for the next year:

Looking at the global markets, ADHB predicts overall milk production from key export regions will rise “only modestly” during 2019. This is due to adverse weather and depleted feed stocks in Europe and Australia, and tight margins in the US. New Zealand however, showed strong growth last year.

Chinese import demand for dairy products is expected to grow this year due to a slowing of GDP growth, a lack of domestic production and low stock.

High prices for butter has reduced demand from consumers as well as food manufacturers who are re-engineering their products to remove butter. The high prices of late 2017 and early 2018 coupled with the extreme volatility in the markets proved too much for many butter buyers, and they have looked to de-risk their businesses against future issues.  All of this has slowed the growth in dairy fat demand.

With global dairy demand expected to continue rising by 1.7% – 2.1% per year, the more modest growth in milk supplies means global commodity prices would be expected to rise.

Looking at domestic UK markets, production costs have risen and further increases are expected off the back of the summer weather, and as a result of Brexit uncertainty. The increase in costs is predicted to stall UK milk production in early 2019, with the Milk to Feed Price Ratio dropping below the long-term average.

With continued uncertainty over Brexit, the expectation is for further exchange rate volatility and companies throughout the supply chain doing their best to mitigate risks through domestic sourcing and building stocks.

As last year, the recent drop in dairy product values is expected to put downward pressure on farmgate prices in the early part of 2019. However, if milk production growth slows, the markets would be expected to start to recover, and any recovery in market prices would be expected to flow through into farmgate prices 3 months later.

AHDB Dairy is a levy-funded, not-for-profit organisation working on behalf of Britain’s dairy farmers. It provides products and services to improve the sustainability of British dairy farming by providing independent, evidence-based information.

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