Global Dairy Trade (GDT) Price Index Drop 0.7% Amidst Global Production Shifts

Published 2023년 11월 14일

The Global Dairy Trade (GDT) auction held on November 7, 2023, witnessed a 0.7% dip in the dairy price index, with an average price of USD 3,255/mt. Notably, 34,514 mt of dairy products were sold, reflecting a 4.1% decline from the previous auction. The price drop was influenced by decreases in whole milk powder (WMP) and butter, but other products saw an uptick. This aligns with the positive outlook on global raw milk production, expected to grow by 2.1% YoY to 956 mmt in 2023. Despite challenges, including a 0.6% YoY decrease in EU cow numbers and a 0.5% YoY decline in New Zealand's fluid cow milk production in 2024, there's optimism for price recovery. The anticipation of increased milk demand before Christmas, especially from China, suggests a return to positive pricing momentum, relieving producers facing margin pressures tied to wholesale commodity prices.

Global Dairy Trade (GDT), the world's leading trading platform for core dairy products held fortnightly, witnessed a 0.7% decline in the dairy price index during its auction on November 7, 2023. This downturn marked a shift from four consecutive sessions of growth, with the average price settling at USD 3,255 per metric ton (mt). A total of 34,514 mt of dairy products were sold during the event, a decrease of 4.1% compared to the previous auction held on October 17, 2023.

Whole milk powder (WMP), traded at USD 2,971/mt, a drop of 2.7%. This decrease exerted significant downward pressure on the overall GDT price index, given that WMP was the most traded product in the auction. Meanwhile, butter was priced at USD 4,890/mt, a decline of 1.6%. On the contrary, all other dairy product categories continued their upward trend. Lactose registered the largest price uptick of 19.2% to USD 718/mt, followed by cheddar with 4.5% to USD 4,042/mt, buttermilk powder (BMP) with 3.5% to USD 2,323/mt, anhydrous milk fat (AMF) with 3.1% to USD 5,489/mt, and skim milk powder with 2.3% to USD 2,724/mt.

Source: Global Dairy Trade

The GDT price index decrease can be linked to the recent positive outlook of global raw milk production. The National Interprofessional Center for Dairy Economy (CNIEL) reported in Oct-23 that global raw milk production is expected to increase by 2.1% year-on-year (YoY) to 956 million metric tons (mmt) in 2023. Notable YoY expansions are anticipated in Belarus at 6%, Turkey at 3.6%, New Zealand at 2.6%, the European Union (EU) at 0.7%, and the United States (US) at 0.5%. These gains are attributed to high livestock productivity and the adoption of new technologies, particularly in the US and Europe.

However, current market sentiments suggest a potential price recovery due to expected tight milk supplies in the near future. In its Oct-23 report, the United States Department of Agriculture (USDA) predicts a 0.6% YoY decrease in EU cow herds in 2023, continuing the trend from 2022. This is expected to bring the count to an estimated 20 million cows at the start of 2024. This decline is linked to increased cow slaughter amid reduced profit margins for farmers. Despite favorable milk production profitability in 2022, EU farmers have faced challenges with declining farm-gate milk prices and persistent high production costs throughout 2023. This situation has led to a reduction in the number of dairy farmers, particularly in Germany, France, Spain, Poland, and other Central and Eastern European countries.

While cow productivity is consistently growing, it is not expected to fully offset declining cow inventories in 2024. Therefore, EU cow milk production is projected to drop by 0.14% YoY, primarily due to diminishing profitability. Recent cattle disease outbreaks in France (epizootic hemorrhagic disease) and the Netherlands (bluetongue) could further impact EU milk production negatively in 2024.

Furthermore, the USDA expects New Zealand's fluid cow milk production to reach 21.4 mmt in 2024, a 0.5% YoY decline. This output is marginally lower than the 10-year average of 21.6 mmt and stands as the third lowest in the past decade. This projection is influenced by recent reductions in farm gate milk price forecasts and the surge in interest rates, which are foreseen to limit operational cash flow in 2024.

This outlook is further complicated by anticipated climate challenges, with a forecasted El Niño weather pattern expected to bring dry conditions to crucial dairy farming regions in New Zealand. During El Niño, New Zealand typically experiences stronger or more frequent westerly winds in summer, contributing to dryness in eastern areas and increased rainfall in the west. Given the heavy reliance of New Zealand's dairy farms on pasture growth, especially during the summer period, an El Niño-type summer could significantly impact the North Island, which accounts for over 57% of the national herd.

Anticipation of increased milk demand leading up to the Christmas holidays is expected to elevate prices, driven by heightened purchasing, particularly of whey powder and cheese products, by China. Forecasts of reduced cow herds in the EU and diminished milk production in New Zealand due to El Niño suggest a return to the positive pricing momentum toward the second half of 2024. This positive shift in pricing dynamics is poised to alleviate profit margin pressures on producers, given the close correlation between farmgate milk prices and wholesale commodity prices.