In W37 in the dairy landscape, Rabobank expects global milk production to grow by 0.3% year-on-year (YoY) in 2023, a downward adjustment from the Aug-23 estimate of 0.5% YoY. This reduction is primarily due to concerns over developments in New Zealand. Despite a rapid milk production increase towards the seasonal peak in New Zealand, low milk prices are not covering production costs for many farmers. Also, challenging weather conditions, including a damp 2023/24 start and the El Niño phenomenon, affect grass growth on New Zealand's North Island. Rabobank predicts a 0.7% YoY drop in New Zealand's milk production for the 2023/24 season.
Rabobank highlights that European Union (EU) milk production rose by 0.5% YoY in Q2-23. This was driven by growth in countries like Germany, the Netherlands, and Poland, though France, Ireland, the United Kingdom (UK), and Italy registered declines. However, Rabobank anticipates a 0.5% YoY milk production decrease in the EU in Q4-23. Robobank also notes that skimmed milk powder prices in the EU have been under downward pressure since mid-Jun-23. Whole milk powder and fresh butter prices also fell between mid-Jun-23 and mid-Aug-23.
European milk powders face stiff competition from New Zealand supplies that shifted away from China, possibly pushing EU production towards cheese and whey. European whole milk powder output declined by about 20% in H1-2023 compared to the same period in 2022. Despite this, EU dairy exports, including whole and skimmed milk powders, grew notably in Q2-23. However, rising competition, substantial short-term supplies in markets like Algeria and Saudi Arabia, and slow inventory recovery in China are expected. Consequently, Rabobank anticipates a slight drop in European milk prices in the coming months.
The European Commission (EC) indicates that EU raw milk prices steadied and even increased in some countries in Aug-23 due to reduced milk production and supply constraints from the heat wave. However, overall prices remained subdued due to limited dairy product demand and significant dry milk stocks. The EC reports that the EU's average raw milk price stood at USD 0.46 per kilogram (kg) in Aug-23, a modest 0.4% month-on-month (MoM) decline and a decrease of 20.17% YoY.
Lastly, in Ukraine, raw milk cost an average of USD 0.35/kg, which is 31.13% less than in the EU. Ukraine registered rising raw milk prices during the heatwave and reduced yields. While price declines in the EU slowed, some countries like Belgium (+8%) and Romania (+2.42%) saw increases, while Sweden recorded the most significant drop (-48.59%). Experts indicate that despite domestic fluctuations, high dry milk stocks and sluggish demand restrained significant price increases. Future price hikes may depend on market adaptation efforts and cow reductions in response to profitability challenges.