Inside Milk
Feed costs reduce dairy farmer's margin
Despite the European lockdowns, dairy stocks are not that bad. Moreover, the growth of milk production worldwide and in Europe is leveling off. These circumstances mean that Rabobank expects stable milk prices.
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Eric Colenbrander
Only mozzarella production for pizzas has suffered from the corona crisis, due to the loss of demand from the catering industry. In the near future, the most important risk factors for milk price developments are declining demand for dairy products from China and the consequences of a possible hard Brexit. The expected decrease in demand from China is not only related to stockpiling, but also to increasing domestic milk production.
Milk volume growth is leveling off
The consequences of the corona crisis for dairy farming worldwide and in the Netherlands are less serious than initially feared this spring, the bank says. The dairy sector has proven to be able to limit the consequences of the corona crisis. It is even a good year for American and New Zealand dairy farming. In those countries, milk production is therefore growing by 1 to 2%. Growth in these countries is expected to level off in the near future.
This also applies to the European Union. Milk production grew by several percent this year, especially in Italy (+4%), Ireland (+3%) and Poland (+2,2%). In the countries with the largest milk volume, France and Germany, milk production hardly grew. The United Kingdom has produced 0,9% less milk so far than last year. In the Netherlands, growth leveled off considerably after a fast start to less than 0,5% in the months of September, October and November. So far this year, a total of 1,4% more milk has been delivered in the Netherlands than last year.
Feed costs reduce margins
Although the demand for dairy is not affected by the corona crisis and the milk supply is not disrupting the market, margins are still under pressure. According to Rabobank, this is the result of feed costs. There are major differences in roughage position, but in general supplies are tight. Not only in the Netherlands, but also in Germany. The sharply increased price of concentrates puts even more pressure on margins. The soy component in particular is the cause of this. The bank expects the soy price to remain high for the time being.