A steady increase in ex-farm milk prices

That was the good news story from Rabobank – a co-operative banking organisation, rooted in agriculture and dating back more than 115 years – which stated that EU and UK milk production was down by nearly 1.7% year on year in its latest report, due to ongoing weather constraints.

Looking ahead, the report pointed out that lower expected feed costs, and an improved margin outlook will eventually drive milk production in main dairy producing countries. However, it stressed that 2024 is unlikely to be a record price year.

While prices have not followed typical weak supply trends as low global dairy demand levels are sufficiently met by available supplies, Rabobank warned that ongoing geopolitical issues are discouraging buyers and continuing to pose shipping risks.

At consumer level, recent easing in inflation levels in some countries is likely to offer some momentum to demand – whole milk prices fell 11.1% in the UK in the year to March, but since 2019 are nearly 48% higher. This spring’s delays in turning cows out to fresh grass may also soften the seasonal production peak, which may stifle further falls in prices. The report also highlights that the current low level of dairy stocks means that any supply chain events could increase the likelihood of dairy commodity price rises.

Looking further afield, demand for dairy products in China improved in line with the Chinese New Year, but to a lower level of imports compared to those of 2023.

China is the watch point country for global export prospects when milk production there struggles to keep up with demand. As a result, Rabobank claims the imbalance is set to continue, predicting a 1.1% year on year increase in Chinese import volumes.

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Back home, with the poor weather from the autumn of 2023 until now, and the hope of improved commodity prices, the report points out that higher producer prices could be delayed in most regions until the final quarter of the year.

But, with the spring flush expected to be a ‘non-event’ and ongoing pressure on UK milk supplies, particularly with Irish supplies tanking, this could help support prices.

Overall, dairy product price forecasts in most key regions indicate a better year following a challenging 2023 with lower year-over-year output for the first two quarters of this year before volume turns positive into the second half of 2024.

Looking ahead, Rabobank says there is increasing evidence that demand is improving when the worst of the recessionary fears have passed in some countries. It claims that while global economic growth will likely be subdued, the overall outlook is modestly improved due to the low level of global dairy product stocks. Any supply shock or demand does nevertheless present an upside price risk for dairy product end users.