After a year of record or near-record farmgate prices, the weakening of dairy markets around the world will still be a big problem.
But the most recent dairy report from Rabobank shows that there are clear differences between regions and dairy products. It says that the large cheese and butter markets in the EU and US that are supported by their own countries stayed high, but not as high as they were earlier this year.
On the other end of the scale, milk and powder markets around the world have been affected by a 9% drop in Oceania GDT index prices over the last three months.
Less expensive milk from farms
The report says that milk prices at the farm gate are now following the trends of the global commodity market and will go down in 2023. At the same time, high input costs are still a clear headwind everywhere, and when combined with lower milk prices, this will put pressure on farm margins. But the recent growth in the milk supply will keep going through the first half of next year.
It also shows how buyers can get into a quieter market, especially since the Chinese market will keep eating up the stocks that have built up over the last year. Second- and third-tier buyers have joined the market in the fourth quarter, and they will have to make up the difference in the first few months of 2023.
China’s dairy imports are likely to be lower in the first quarter of 2023 than they were in the same quarter of 2022. However, buying interest is likely to pick up in the second quarter.
Prices for dairy products have gone up in stores and restaurants around the world. Even though dairy demand is complicated, the resilience that has been shown so far will be put to the test even more by a drop in confidence as people’s disposable incomes fall.
Most at risk are emerging markets, such as buyers in tiers 2 and 3, because inflation is expected to hurt their budgets in the first half of 2023.
When looking further into the future, Rabobank analysts say that the fundamentals of the global market are still skewed down. Much depends on how China runs its own government and how strong the dairy market is as a whole. Weaker growth in supply has kept dairy commodity prices relatively high, but there are signs of weak growth on the horizon, though it will depend on China reopening in a meaningful way in the post-Covid world.
In the short term, dairy demand is likely to go down before it goes up again, because food prices are going up across the board in many economies.
