Rabobank predicts that dairy prices will continue to go down in Q1 2023 because Chinese demand for imports will be low because they plan to destock their own stores. But Rabobank predicts that Chinese buyers will become more interested in buying again starting in the second quarter of 2023. This should lead to a rise in Chinese imports compared to the same time last year and help dairy markets around the world.
Rabobank’s analysts say that the Global Dairy Trade (GDT) auction on January 17 was a pretty quiet event, with the average price going down by 0.1% to US$3,393 per mt. Only 4 of the 11 GDT auctions since the beginning of August have ended with a higher price than the last one.
The US makes more cheese.
In its November report on dairy products, the US Department of Agriculture (USDA) said that the country was making more cheese. Adjusted for 30 days in a month, production went up 1.7% from one month to the next. “However, production was down 10% from the year before as a result of a weak export market. “Because Non-Fat Dry Milk production went up from one month to the next, stocks went up by 3.4% from one month to the next,” says Rabobank.
Rabobank says that the January World Agricultural Supply and Demand Estimates (WASDE) report from the USDA was disappointing for US farmers. The 2023 price projections for all products and milk classes were cut because of weak domestic demand and price pressure from other countries. Rabobank thinks that these cuts will hurt farmers’ profits, which will likely slow the growth of the US in 2023.
In a lot of places, the US Consumer Price Index for dairy and related products is still high. “Based on data from December, it was 15.3% higher than the same time last year. Australia’s Q4 2022 data showed that the prices of dairy and related products went up by 4.2% from one quarter to the next,” says Rabobank.
“As a result, we’re seeing more signs that the demand for dairy is weakening, as more people buy private label products. As inflationary pressures continue, there is growing worry that falling consumer confidence will make people spend less, especially in developing countries, says Rabobank.
The US dairy industry is growing.
During a market outlook session at the Dairy Forum of the International Dairy Foods Association, Mary Ledman of Rabobank said that she thinks the US dairy industry will grow in the long run. She brought up the investments that are being made right now in the American dairy processing sector, both at home and abroad.
Ledman thinks that there isn’t enough trust right now to increase milk production in Europe. “It’s because of political talk. Remember, no laws have been passed yet, but the talk is shaking the confidence of dairy producers.”
A recent report from UBS in Australia showed that dairy prices are still the main cause of inflation there. In the year leading up to December, prices for dairy products went up by 14%. The price of cheese went up by 24%, and the price of butter went up by 18%.
Analysts at UBS are getting more and more worried about how little milk Australia is making. FreshAgenda, an industry group, recently said that they expect a 6-7% drop in the financial year 2023 and another 3-4% drop in the financial year 2024, which would bring the total to 7.7 billion litres.
Coles, a big supermarket chain, was the last company to raise the prices of its own brand dairy products. Coles says it has to raise the price of its milk because packaging and shipping costs have gone up. Leah Weckert, the chief commercial officer at Coles, said that these price hikes were needed because of higher costs in the supply chain, such as higher payments to dairy farmers and processors.
In other market news, Fonterra and Nestlé have agreed to sell their joint venture Dairy Partners Americas (DPA) Brasil for NZD $210 million (US$136 million) to the French dairy company Lactalis. The deal should be done by the middle of 2023, if regulatory authorities give their approval. Miles Hurrell, the CEO of Fonterra, says that the sale of DPA Brazil is in line with the co-plan op’s to put New Zealand milk pool first.
