Rabobank’s Q4 Global Dairy Quarterly has a sobering outlook for global milk production. Nine consecutive quarters of year-on-year increases in global milk supply will end with negative milk growth expected in Q4. Weather related issues affecting peak production in New Zealand and Australia, and subdued supply growth in US and Europe as producer margins are squeezed has left a global milk production deficit too deep to be offset by production gains in South America. Rabobank’s senior dairy analyst Michael Harvey expects combined Q4 milk production in the big seven dairy exporting regions to decline by 0.3% YOY.
While there is potential upside to already high farmgate milk prices in some regions rising input costs continues to limit the production response by producers. Global dairy exports were 7% ahead YOY in the first half of 2021 but slowed to 1% in July and August due to logistic disruptions, rising transportation costs and elevated commodity prices. Harvey said a further slowdown in demand for dairy inputs from China is expected and is needed to cool global prices in the face of limited supply-side increases. Rabobank said despite rising inflationary pressures, consumers are yet to face retail price hikes for dairy products sufficient to be a deterrent in most countries, but this will be coming in 2022. There are still plenty of pressures on global dairy markets, including new variants of COVID-19, inflation, labour and logistic challenges which will weigh on global economic recovery and dairy markets.