Dairy prices up in the air as supplies teeter on tightrope

While the short-term outlook is not positive, over the next decade, markets will be buoyed by demand in developing nations.

Global milk markets are as finely balanced as 0.5-1 per cent, one of the most respected dairy analysts has warned as markets crash into what some have dubbed “milk price apocalypse”.

Tuesday’s Global Dairy Trade Auction saw the GDT Index fall by 1.5%. The previous auction at the start of the month was up 3.2%, but followed three consecutive drops of 3.8%, 2.8% and 0.1%.

Overall, it sits at levels last seen in December 2020, despite the fact that input costs have significantly increased in the two years between.

Closer to home, the Dutch Dairy Auction, one of the biggest trading platforms for EU dairy produce, saw butter prices fall 40% to €4,300 a tonne at the end of January. Prices were up slightly this week, but that’s not entirely surprising given that four of the five key commodities had sunk to three-year lows.

Peak milk

It’s worrying as producers in Ireland enter ‘peak milk’ – the three months following spring calving when milk supply is at its greatest.

However, speaking at a recent Ruminant Nutrition conference held in Kildare, John Allen, the director of one of the biggest agricultural consultancies in the UK, Kite Consulting, explained that while the short-term outlook is not positive, over the next decade, markets will be buoyed by demand in developing nations, such as the Philippines, Vietnam and Malaysia, and increased demand in China. However, the balance between supply and demand remains on a tightrope.

“This is a short-term issue. In the future, exports of milk will decline, and we will be short of dairy,” he said.

“In terms of the three major blocks of dairy exporters — Oceania (New Zealand), US and Europe — account for around global dairy export third each, with New Zealand’s [volume of exports] going down every day.

“[These exporters] produce around 300bn litres, of which they consume around 240bn domestically themselves, so the available for export was 74bn last year.

“On the importers’ side — Thailand, Vietnam, Malaysia, Philippines, Middle East, Africa increasingly — consume around 550bn.”

“Increasingly, New Zealand is opting out of the [export] market; It will carry on producing milk, but with more interest in valorisation - and that is similar to where Ireland is going.

“The US was a lower player in the world, but that is changing because the US currently doesn’t have the same constraints on production as the EU and New Zealand do, while we recognise that the EU will likely start reducing its exportable surplus.

“We are in an imbalanced market at present. UK markets have already gone down by around 10c per litre, and I make no pretence that in the next few months, we will see dairy prices go down by another 10-15c a litre.”

Mr Allen explained that his team’s analysis had shown that this imbalance results from increased production from major exporting nations — particularly from Europe and the US.

It’s backed up by data collated by the Dutch dairy board, which shows that milk supply increased by 2% overall across the EU at the tail end of 2022. Since September, supplies were up 7% in Ireland, 5% in the Netherlands, 3% in Germany, 2% in Poland and 1% in France.

Mr Allen said that currently, just 3-5bn litres surplus, or 3bn litres less demand, a 0.5-1% swing, is sufficient to crash the market.

“The world has given 15% more revenue to dairy producers in the last year. So people have been willing to buy dairy at these higher prices. But, we have actually consumed, in real terms, 3bn litres less,” he said.

“In terms of the imbalance in global production, we have just taken out 0.5-1% of world demand. Welcome to one of the most volatile industries in the world.”

Commenting on the outlook for Irish producers, Conor Mulvihill, director of Dairy Industry Ireland, told the Irish Examiner: “Milk outlook price in Ireland is difficult with key commodity prices over 40% down on the peaks seen on September 2022.

“Allied with this, there is no respite in hugely increased energy and supply chain costs that processors have had to factor in over the past year, in tandem with the higher input costs farmer suppliers have suffered.

“Futures markets for dairy have also been negative, but recent days have seen a respite in declines in key dairy commodity indexes for later in the year, which is welcome.”