Milk prices will remain high all year, IFCN predicts
One of the anticipated trends is cheese and butter consumption increasing, but the use of milk powders in processing declining.
Milk prices will remain high all year in the face of current uncertainties, predicted the International Farm Comparison Network research partners at their recent interactive workshop, organised with the Eucolait federation of European dairy traders.
The event brought together 52 participants from 39 different companies and institutions, with some warning of a struggle in the future for processors to acquire their share of the world’s shrinking milk pool.
IFCN said a decreasing global milk supply is meeting steadily increasing demand.
As milk price increases are insufficient to compensate for the extreme increase in agricultural input costs, leaving farmers’ profit margins under pressure.
These economic challenges are accompanied by rising uncertainty about future political stability, environmental regulations, and trade agreements, which could bring about a phase of fundamental change in the dairy industry.
With the war in Ukraine causing uncertainty, and a general shortage of food and difficulties in securing global food production, consumers are willing to pay more for dairy products. But who will supply the milk for these products is unclear.
The message for companies at the workshop was it is critical to anticipate future developments, mitigate risk, and understand the new rules governing dairy farming, processing, distribution and sales of dairy products, as volatility increases.
One of the anticipated trends is cheese and butter consumption increasing, but the use of milk powders in processing declining.
Eucolait has published its Global Trade Flow Report for 2021. In it, Eucolait said 2021 will likely be remembered as the last year of the "old normal", even though 2020 and 2021 brought their own changes in consumption patterns, due to the global pandemic and Brexit.
"Since the beginning of Covid-19, the focus has shifted from demand shocks to supply shocks, now amplified by the Russian invasion of Ukraine," it stated.
Milk deliveries fell by 0.3% in 2021, the first decrease since 2009.
Milk deliveries will fall further, predicts the European Milk Board, which represents about 100,000 dairy farmers in 21 associations in 16 countries.Â
The upward milk price trend in recent months does not compensate for the rise in costs for inputs like fertilisers, feed and energy, says the EMB.
It says it costs 53 cents/kg to produce milk in North Rhine-Westphalia in Germany, but the main dairies paid only 44c in February.
EMB says increased feed prices have forced farmers in member associations in Italy and the Netherlands to send dairy cows for slaughter.
“This incredibly tense situation is currently forcing many farmers out of milk production and is eroding farming structures in the EU down to dangerous levels,” said EMB president Sieta van Keimpema.
On the demand side of the global dairy industry, China’s imports will again play a pivotal role. Strong demand, sustained even at higher prices, supported the market through 2020 and 2021, and China’s import demand played a central role in this.
Import buying could be dented through 2022, after a build-up of stocks in China. Volumes are already down 12% for the first quarter, in 2022 compared to 2021.Â
However, last week's fifth consecutive fall in the GDT Auction average price is not being attributed to market weakness in China, but instead to the continued Covid lockdown of 20 ports in China, and to Fonterra’s exit from the Russian market.
