Trade policy could be the single most important factor when it comes to who US dairy farmers pick for president in November. A variety of topics driven by federal government policy can impact dairy prices, including trade policy, sustainability requirements, nutrition guidelines, or food support program (SNAP, WIC) funding levels. Rabobank said it expected subdued export sales in US cheese and butter, but Fuess clarified that weaker US export sales across nearly all dairy product categories in 2023 were following a record export year as measured on both a volume and value basis in 2022.
Rabobank expects US cheese prices will be competitive versus other key dairy exporting regions, including the EU and New Zealand, driven by expanded US cheese processing capacity and subdued domestic demand. In butter, the opposite story, with US and global prices firmly elevated. The likelihood of a more long-term return to profitability is difficult to proclaim, but market volatility should continue to be a persistent force in dairy markets.
The outlook analysis for the dairy industry in China suggests that farmer margins will improve in most regions as the year progresses. However, in China, the expectation is for raw milk prices to likely stay low, with AustAsia Group Ltd expected to record a consolidated net loss of approximately RMB 450 million to RMB 500 million, compared with the net profit of approximately RMB 158 million ($23.4 million) for the year ended 31 December 2022. China Modern Dairy is expected to record a net profit for the year ended December 31, 2023, in the range between RMB160 million to RMB200 million (2022: approximately RMB580 million), representing a decrease of approximately 66% to 72% YOY. The estimated range of the cash EBITDA is between RMB 2,400 million and RMB 2,500 million (2022: RMB 2,740 million), representing a YoY decrease of approximately 9% to 12%.
China’s National Food Safety standard on liquid milk is unlikely to influence this year’s trade, specifically whole milk powder imports. The new standard on 2024 WMP imports should not be a key influencing factor. Top two players like Yili and Mengniu, who hold 87% of the UHT value share, have already used domestically sourced raw milk to produce UHT white milk. Once the new standard is implemented, this should only have an impact on smaller players (less than 20% UTH share) that used to import WMP and use reconstituted milk in UHT.
China’s leading dairy farming companies, AustAsia Group, China Modern Dairy, and China Youran Dairy Group, have posted net profit loss warnings due to weaker-than-expected demand and lower sales prices for raw milk and the decrease in the market price of beef cattle and heifers in China. The gross profit margin is lower than in 2022, largely because of lower milk price and comparatively higher feed costs.
Lastly, is there scope for improvement in the dairy products Consumer Price Index (CPI)? The recent year-over-year declines in the dairy product CPI are driven by a combination of high prior year comparable data points coupled with lower milk prices in 2023 versus 2022 that trickled through to the consumer in the form of lower priced dairy products.
