Global milk production sees first growth decrease since 2019
After more than two years of uninterrupted growth, global milk production is down, with growth expected to dip into negative territory in the final quarter of 2021, according to the latest research from Rabobank. Farmgate milk prices are on the rise, in line with higher commodity prices worldwide, but increasing costs of inputs, lack of labor, and unfavourable weather will reportedly continue to limit production.
According to the latest dairy report from Rabobank, global milk supply growth halted in the second half of the year, bringing the market to levels not seen since 2014. Weather-related issues decimated Oceania’s peak production and margin erosion in the US and Europe slowed growth. Production gains in South America were not enough to offset these developments. “We anticipate a modest recovery in the second half of 2022, but that will require favourable weather and the tempering of feed costs,” says Mary Ledman, global dairy strategist at Rabobank.
High feed prices and general input cost inflation are common themes across the major milk-producing regions. While farmgate milk prices are approaching new highs in Oceania, Europe, and the US, farm margins remain tight. Adequate milk prices across much of the world offset higher cost pressures. Nevertheless, the rising costs of inputs, lack of labour, unfavourable weather, and questionable feed quality will continue to limit dairy production.
Dairy exports slowed in response to logistic disruptions, rising transportation costs, and elevated commodity prices – in addition to the supply reduction. The expected slowdown in import demand from China is needed to cool prices in the face of limited supply-side increases.
Consumers will see higher prices in 2022, negatively impacting demand
Despite rising inflationary pressures on dairy and food companies, consumers have yet to face sticker shock for dairy products in most countries, supporting current demand. Rabobank expects that higher commodity prices from the second half of 2021 will be passed along to consumers in the new year. Eventually, as consumers face price hikes, demand will be negatively impacted, particularly in emerging economies.
“Consumers will be bracing for cost-of-living pressures through much of 2022,” says Ledman. “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.”