Rabobank foresees small growth in milk production

The average European milk price has increased by €1,40 since July to €34,92 per 100 kilos, according to Rabobank's new update for the third quarter of 2019. In percentage terms, this is an increase of 4,2%. However, based on the fat and protein contents, the bank already states that the milk price will end this year below the 2018 level. In contrast, prices for basic dairy products developed positively between September and November; so the price of skimmed milk powder in that period by €385 to €2.481 per tonne (+18,4%) and the price of whole milk powder increased by €171 to €3.037 per tonne (+6%).

Rabobank wonders to what extent these price increases can be passed on to end users and consumers next year. "Due to high prices for skimmed or whole milk powder, for example, demand may also fall in emerging and importing regions," writes the couch. Lower economic expectations, trade wars and Brexit also play a role in the dairy market. What is positive is that exports were also very good in the third quarter; butter (+75,2%) and cheese (11,1%) in particular stand out. This is largely due to the higher American import tariffs on cheese, among other things.

Small growth in milk production expected
In the main dairy exporting countries, milk production increased by 0,6% in the third quarter, compared to the same period last year. According to Rabobank, this is mainly because the milk supply in the USA attracts. Production in the European Union is also higher than last year (+0,8%). In the first 9 months of the year, milk production in the European Union was 570 million kilos, which is an increase of 0,5% compared to last year. The largest increases can be attributed to Ireland (+8%) and the United Kingdom (+2,4%).

Nevertheless, Rabobank expects that the increase in milk production will be modest next year. The bank expects growth of less than 1% for the main dairy exporting regions. For the European Union alone, the expected growth is approximately 0,7%. "Despite the higher milk prices, there are regional factors that slow down rapid growth in production," the bank writes in that dairy update. "This could, for example, be due to weather conditions, the implementation of stricter regulations or adjusted economic expectations."

If we look specifically at the European Union, the bank expects that milk production on our continent will be 0,6% above last year. In Poland and Ireland, the bank predicts that milk supplies will be 2% and 7% above last year's levels, respectively. However, it is expected that this level will not be achieved for Germany and France. In these two countries, however, the fact that the dairy herd has fallen sharply last year also plays a role.

Rabobank is also more pessimistic about milk production in the Netherlands. The expectation is that Dutch milk production this year will be 0,75% below last year's level. "Due to relatively high (fat) contents, we expect fat production to end at the same level," the bank says. Thicker milk is also supplied in other countries in Europe. The changes in the composition of the ration, as a result of the tight supplies, are the main cause of this. The forecast for 2020 is more positive, because growth is expected to range from 0,5% to 1%.

Competition from abroad
When we look at the main competitive markets, the United States and New Zealand stand out. In the former country, milk supply is starting to return to the 'normal' pattern, as described earlier. This also makes the margins for dairy farmers in that country currently attractive. "Since feed prices are rising less rapidly than milk prices, margins appear to remain good towards 2020," Rabobank predicts. “In contrast, forage quality appears to be an uncertainty due to late sowing of winter crops and early snowfall.” The margins are not used to make investments, but mainly to clear the backlogs.

The situation in New Zealand is less positive, because this country experiences variable weather conditions. This is clearly reflected in New Zealand milk production. "After a strong start to the season, production in September and October decreased by 0,7% and 2,6% respectively. Since October is usually the peak month, the figures for the first 5 months of the season are 0,7 % behind last year," Rabobank reports. On the other hand, Fonterra has the milk price forecast for the 2019/2020 season upwards adjusted. "In both New Zealand and the United States, current milk prices provide sufficient room for positive margins," Rabobank concludes.