The global dairy market is ‘teetering on the edge’ as issues continue to hamper milk production across the world’s seven major dairy-exporting regions
Global milk production fell in the fourth quarter of 2021, nearing levels not seen since 2014, as outlined by agribusiness specialist Rabobank in its Q4 Global Dairy Quarterly Report.
Across the globe’s seven major dairy exporting regions – New Zealand, Brazil, Argentina, Uruguay, the European Union, United States and Australia – total milk production in Q4 of 2021 was expected to decline by 0.3 per cent compared to 2020.
The difference represents the first quarterly year-on-year decrease seen in the global dairy market since 2019, following nine consecutive quarterly increases.
Warning signs were already present in Q3 of 2020 when combined global milk supply growth in major regions halted in Q3 before falling into deficit in Q4.
The report says a number of challenges are responsible for the low milk production levels, with the fall in Australia and New Zealand’s milk production largely due to weather-related issues.
A wet spring hampered key dairy regions Tasmania and Victoria and caused Rabobank to amend its Australian milk production forecast to 8.86 billion litres – a 1.8 per cent decrease for the 2021–22 season. In other markets such as the US and Europe, supply growth has been thwarted by the squeezed profit margins of producers.
Sentiment remained positive in South American markets where favourable milk production gains were experienced, however this wasn’t enough to offset the dips in other regions.
Exports around the world have also slowed as logistical disruptions, rising transportation costs and prolonged increases to commodity prices took effect.
“Global dairy exports based on product volume ran seven per cent ahead of the prior year during the first half of 2021 but slowed to one per cent in July and August,” Rabobank’s report says.
Dairy commodity prices are high across the globe, with labour shortages, weather conditions and low feed availability likely to impact them globally.
Rabobank senior dairy analyst Michael Harvey says dairy companies in Australia are already upwardly adjusting the farmgate prices they announced in June.
“There is potential for further increases as dairy exporters benefit from higher commodity prices, particularly skim milk powder,” he says.
“But there are lingering headwinds for local dairy exporters given the weaker-than-expected spring flush and ongoing supply chain bottlenecks and disruptions.”
While Australian dairy farmers were enjoying good margins, there were serious production and margin risks beyond the weather, including supply challenges and higher input costs for fertiliser and herbicides.
“Rabobank also forecasts another large Australian winter grain crop for 2021–22. This will be welcome news for feed purchases – but noting global prices are supporting local prices,” Harvey says.