GLOBAL – A report offering insights on the dairy market outlook for 2023 has recently been published by Rabobank, a Dutch financial services giant, projecting the impact of feed costs, and China’s economy among other issues, on the global dairy value chain.
Farmers’ and dairy companies’ milk prices are predicted to fall from the favourable prices in 2022 as feed prices are reported to be at an all-time high.
In the US, animal feed such as corn and soy meal values are elevated and are expected to remain the same, this is anticipated to cause a ripple effect on the costs of milk.
According to the report, participants all along the dairy value chain are being affected by this. Tight on-farm margins are to be expected from Q123 onwards.
Analysts also report that fuel and fertilizer costs in the New Zealand markets are a significant challenge faced by dairy farmers but some input price relief is expected over the next months.
In Australia, dairy farmers are expected to enter the coming season with good feed reserves and the availability of water after a decent 2022/2023 winter crop, according to the report on the outlook.
Russia-Ukraine War impact
The world is grappling with geopolitical unrest on account of the prolonged and intensifying Russia-Ukraine war which is disrupting the supply chain operations and leading to an increase in farm input costs.
The dairy market price overall remains uncertain with more supply than demand contributing to weaker dairy commodity prices in the first quarter of 2023.
In the EU milk prices are currently in the midst of a large price correction which is expected to result in “tighter on-farm margins from quarter two onward”, according to Rabobank’s report.
It further highlights that these prices led to a “mismatch between dairy farmers optimizing milk production on the back of strong margins and dairy companies accumulating loses on the surplus milk”
According to the report, the main challenge in the EU is not the milk supply, but the “lack of demand” to absorb the surplus milk.
Higher inflation and increasing interest rates are prompting consumers to develop a more frugal purchasing behaviour.
The report however forecasts that milk production from the Big 7 export regions will increase in 2023 by 0.78% as compared to the 1% increase predicted by analysts in the last quarter of 2022.
In 2022, the Big 7’s production declined by 0.9%.
China’s reopening impact
Meanwhile, a lot of the dairy value chain operations depend on China’s internal policies as it is likely to re-enter markets in Q2 with a bigger presence from Q3 2023 onward.
Despite China’s retreat, the global dairy trade did quite well in 2022. Exports to key importers including Mexico, Indonesia, Japan, Algeria, and South Korea, among others, surpassed 2021 levels.
With the country reopening and rejoining the markets, the report predicts an improvement in imports.
“China’s dairy imports in the first quarter of 2023 are expected to fall short of year-ago levels, with renewed buying interest developing in the second quarter of the year,” said Mary Ledman, the global sector strategist for dairy at Rabobank.
“We expect a mild year-on-year increase in imports in the second half of 2023.”
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