Global dairy commodity markets will remain under the strong influence of tight milk supplies while demand remains resilient. It seems there is little scope for something to “give”. The rapidly developing and terrible conflict in eastern Europe only adds to supply-side stress.
The supply–side of the dairy complex isn’t expected to improve quickly as the top 5 producers are all in decline in Q1-2022. While milk prices are rising, it seems cost pressures for both farm and processing sectors are still rising faster and weather in Oceania and the US isn’t helping.
While the seasonal lift in milk supplies in the northern hemisphere may in theory increase commodity volumes, there are several significant threats that negate this seasonal effect, keeping protein values firm. Extreme prices and shortages of fertilizer supply in the EU will limit pasture growth, curtail crop yields and therefore the volumes of stored feed for later in the year. Producers have fewer cows and inducements to further reduce numbers. Weather will have a major big influence, but a warmer-than-normal spring and summer are expected.
While the US usually rebounds faster when margins over feed costs improve, the situation has worsened. Cow numbers are still falling and won’t rise until H2-2022, but rising feed and operating costs, reduced replacement numbers and a worsening water crisis in the southwest will limit yield improvements.
Demand will inevitably be rationed in sensitive consumer segments at current high prices although little of that is evident yet with the fast ramp up in commodity prices. The EU has been the major driver of tight supplies, and the response in domestic demand for cheese and butter will be also critical in Q2 and Q3-2022 as households face rising costs of living.
China’s demand remains a critical factor but is expected to ease with improved local availability and slowing internal demand. The zero-COVID policy remains an impediment to a faster recovery in the short-term.
By Edwin Lloyd, General Manager Commercial, Maxum Foods – Your partner in dairy