Rabobank predicts loosening for end 2022

Rabobank expects the combined Big-7 milk pool to return to growth in the fourth quarter of 2022, ending five consecutive year-on-year quarterly declines, it says in its Global Dairy Quarterly Q3 2022. This is an unprecedented accomplishment in the past two decades. Dairy consumer prices are rising across many categories and regions, but consumption will have a level of resilience, with volume impacts varying by economy, it notes.

However, buyer caution is still required. The forecast growth rate exhibits weather risk, is against a weak comparable, and is likely to be below the long-term average through 2023. Rabobank warns that a potential collision is approaching, with the fourth quarter year-on-year milk supply growth, weak Chinese import demand, and broader demand rationing in developing countries weighing on forecasts. The weak demand from China is expected to further slow in the first half of 2023. A little more milk supply and sluggish dairy demand in home markets will result in Big-7 exportable surpluses expanding into the first half of 2023. Feed prices have fallen, but weather risks linger. Global feed benchmark prices have fallen through the third quarter of 2022, largely as a result of a Ukraine grain corridor opening and Russian exports lifting. Nonetheless, extreme heat in the US threatens crops, and EU spring crops also suffer from unfavourable weather. More disruption to Black Sea trade is still possible Milk prices across most export regions remain elevated and at record levels in some cases. However, there are already signs that the milk price cycle has peaked. Still, strong farmgate milk prices and some cost relief in the form of lower feed and fertiliser prices in some regions will be welcomed by farmers.

In the US, increased cheese capacity is drawing milk away from butter and powder and into cheese, resulting in depressed cheese prices and very high butter prices. The firm US dollar is good for exporters outside the US, but problematic for emerging market economies. In South America, drought and high input costs are still weighing on milk production, while New Zealand’s farmers are also increasingly under pressure due to higher input costs and sliding farmgate milk proce forecasts. Australia’s milk supply recover will be limited by a slow herd rebuild, but it has some relief on the cost front.

In EU 27+UK, milk deliveries dropped by 1.3% or 539,000 metric tons year on year, which is more than previously anticipated. Of the largest EU milk producing states, only Poland saw a gain in the second quarter of 1%. The EU-27 average farmgate milk price reached an average of €50.33/100kg in the quarter. Due to the continent-wide drought and its impact on silage, Rabobank downgraded its fourth quarter milk supply forecast to 0.5% YOY, but modest increases are seen in 2023 of 0.5% and 0.1% in the first and second halves of 2023, respectively.

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