Global dairy production still in growth but faces headwinds

John Tobin, Data and Market Intelligence Specialist

For the first quarter of 2023 global dairy production across the main exporting countries has started to slow down according to the June 2023 edition of Bord Bia’s Global Dairy Market Report which is delivered in partnership with StoneX. While output across these countries is expected to remain in growth, this growth is arising from weak numbers in the same months in the prior year. Meanwhile, with farmgate milk prices trending downwards is expected to keep a lid on production growth with the full effect of lower prices may not becoming fully apparent until September.

Production in the EU and UK, overall has seen output grow marginally estimated to be up 0.1% on a volume basis. While, strong constituents has meant adjusted production is up 0.8%. Within the region, trends have differed across the top producing countries with Germany and the Netherlands seeing an increase in volumes of 4% and 3% respectively. Whereas, production in France is down 2%, with volumes on a monthly basis to date recording reductions when compared to the same month in the prior year. This drop in French output coincides with a continued decline in their dairy herd with their current herd as of December 2022 standing at 3.231 million head down 91,000 head on the prior year, recording one of its biggest declines since 2009, overall since 2019, the French dairy herd has contracted by 7.5% or almost 260,000 head (Eurostat, 2023).

For the first quarter of 2023 Irish output is only up 0.3% with challenging weather conditions in March being a limiting factor on volumes. However, with improved conditions over the peak months and strong registrations of dairy calves. It is expected Irish production has the potential to record increases on year earlier levels in the short term. It is worth noting that Ireland’s dairy herd only grew marginally in 2022 with an extra 5,000 cows added to the national herd (the smallest increase seen since 2010 (Eurostat, 2023).

Elsewhere output in the US was weaker than expected in April up 0.3% vs. a forecast of 0.6%. Between March and April it’s national herd fell by 16,000 head, largely due to a significant blaze on a farm in Texas. However, with recent rains in California and improved production per cow should help offset a declining herd and result in modest growth in output for the remainder of 2023. In New Zealand, which is approaching the end of its current production, season has seen its fortunes change as production for the 2022/23 season is now expected to record a slight increase of 0.1% vs. a forecast of a decline of -0.35%. This has led to the outlook for the New Zealand farmgate milk price moving lower and anecdotally, there’s reports of concerns of increased costs amongst New Zealand farmers which may give rise to margins coming under pressure. This conclusion was also highlighted in Rabobanks most recent quarterly outlook, which has indicated prices are currently at or below the cost of production. Consequently, the impact of potential tighter margins and increased environmental regulations may limit production growth to 0.5% for the next season assuming normal weather conditions (Rabobank, 2023).

Australian production for the current year is expected to be down by about 5.4%, but could potentially see an increase of less than 1% next season, with Rabobank also suggesting that conditions are in place for the milk pool to stabilise (Rabobank, 2023). In Argentina output bounced back in April, which came as a surprise following extreme heat and drought conditions in the two months prior. However, it is believed limited forage availability over their winter (which commences in June) will help to keep supplies in check. In Q4 2022 and Q1 2023, Argentinian farmers drew down forage stocks to get through drought conditions, and hence may be in line for a challenging winter as the availability of forage and feed are believed to be in short supply currently (Rabobank, 2023).

Implications for Irish Dairy Companies

Overall, across the main exporting regions it appears that milk production growth will start to moderate over the remainder of 2023, with the outlook for 2024 to be weaker than average. Reduced supplies may help to provide support to prices. However, this would also require the demand situation to improve which is described as being subdued at present. Given that the supply demand relationship across the globe currently varies by region, Irish dairy companies will need to stay informed of developments by region to spot potential market opportunities. Irish dairy companies that may want a more in-depth look at markets they may wish to target can make an appointment to visit the Bord Bia library or to find out more about our resources and how it can help support your business by calling +353 1 668 5155 or email thethinkinghouse@bordbia.ie.

References:

Bord Bia, & Stone X. (2023). Global Dairy Market Report. Dublin: Bord Bia.

Eurostat. (2022, June 7). Bovine population - annual data. Retrieved June 14, 2023, from Eurostat website: https://ec.europa.eu/eurostat/databrowser/view/apro_mt_lscatl/default/table?lang=en

Rabobank. (2023). Global Dairy Quarterly Q2 2023. Netherlands: Rabobank.