News Rabobank
'Global shortage of milk keeps prices high'
The decline in milk production in the 27 European countries and the United Kingdom will continue this year. "As a result, there are almost no dairy products left for export. The limited supply also maintains the current milk price," Rabobank specialists write in a new report.
Global milk supply in the seven largest export regions fell more than expected in the last quarter of 2021. The reasons for this? Persistent bad weather in the southern hemisphere, high production costs and disruptions due to the corona pandemic.
Rabobank foresees that milk production will also fall in the first half of this year, by 0,7% compared to last year. "Small growth in European milk production is possible in the second quarter, provided the weather conditions are favorable and a sufficient margin is achieved. For now, we assume an unchanged milk supply compared to last year." Rabobank expects prices above the current price level for the second quarter.
Exports of the most important European dairy products fell by 2,3% in the fourth quarter. The bank expects lower export volumes for the first and second quarters. This is a result of the limited supply, regional price differences and high logistics costs.
Decrease in supply continues
In the Netherlands, the supply decreased by 134.000 tons (-3,9%) in the fourth quarter, compared to the last quarter of 2020. Over the whole year, milk supply in the Netherlands decreased by 2,3%. Rabobank expects that decline to continue this year, as a result of which hardly any products are available for export. For the 27 European countries and the United Kingdom, the bank expects a decrease in milk production of 0,5% in the first quarter, compared to last year.
In the Netherlands, the year started with negative growth: 2,7% less milk was delivered in January than in the same period a year earlier. Also in countries such as Germany and France a persistent decline in milk production can be seen. This seems to be an indication that lower milk volumes must be structurally taken into account, according to Rabobank.
Marijn Dekkers, sector manager dairy farming at Rabobank: "The declining production in Dutch dairy farming appears to be related to the decreasing amount of available phosphate rights. It also appears that the utilization rate of phosphate rights is declining." It is striking that the prices for phosphate rights remain at an unexpectedly high level. Rabobank sees that - despite the high milk price - little investment is made by dairy farmers because of the licensing problem.
Less appetite for China
Rabobank expects China's import needs to be much lower this year than last year, due to ample domestic stocks and continued production growth. The forecast of 4% growth in Chinese milk production is maintained. This forecast may be on the conservative side, the bank indicates, as record exports of heifers to China from Oceania in 2021 of 164.000 heifers, a record compared to the past decade.
The direct impact of the Russian invasion in Ukraine on dairy exports for the Netherlands and the European Union seems limited for the time being. This is because restrictions have been imposed by Russia on almost all major flows of dairy products since 2014, according to Rabobank. The indirect impact is expected to be higher.
Linda van Eekeres
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