Freshagenda’s latest Global Dairy Directions outlook has tightened further on the supply side since our October release with peak production in NZ weaker than expected and downward pressure on EU milk production as cows head inside to munch on more expensive feed. The rapid slowing in US herd numbers eased a little in latest data while cash margins will improve slightly which may stabilize output.

The outlook for milk collections won’t get better unless great pasture conditions develop in the European spring, while US milk will likely remain slightly below the prior year. In the meantime, farm input cost pressures will intensify through winter and likely have a further impact on the spring flush in Europe, as farmers protect cashflows by limiting fertilizer applications. Meanwhile, high beef prices will still be tempting for farmers who require quick cash relief through culling.

On the demand side, there has been some weakening in EU fat prices post-festive season buying but domestic demand is good. Uncertainty for the food service market lingers in some regions but retail has been more than supportive. China’s demand through the peak shipping period into Q1-2022 remains critical but indicators from that market do not suggest a rapid weakening. Higher dairy commodity prices may increase the caution in some markets, especially with a stronger US dollar. Buying in some regions is close to trend but hand-to-mouth behaviour will continue with ongoing mobility and macro uncertainty. Our outlook sees a slowing in trade but that won’t alter the tension in ingredients markets given supply limits.