W10 Dairy Update: Lagging Production Meets Rising Prices Amidst Geopolitical Shifts and Shrinking Herd

Published 2024년 3월 15일

In W10 in the dairy landscape, the global dairy market in 2024 is characterized by lagging production, rising milk prices, and shifting trade dynamics. Despite expectations of increased milk prices, major exporting regions are experiencing a 1% YoY decline in production growth, with a full recovery anticipated only in H2-24. Recent geopolitical conflicts have opened up opportunities for EU and UK dairy exports to North Africa and the Middle East, aided by favorable exchange rates. However, rising EU dairy prices and limited product availability may hinder future export volume growth. Meanwhile, Dutch milk supply trends indicate a shift towards higher-value products like cheese and condensed milk, with a forecasted decline of approximately 2% YoY in H1-24, partly due to weather-related impacts. Conversely, recent data from the EUROSTAT suggests a continued decline in the EU's cattle population, posing long-term concerns about the region's livestock production capacity.

Lagging Production, Rising Prices, and Geopolitical Shifts

The global dairy market in 2024 is characterized by lagging production, rising milk prices, and shifting trade dynamics, according to Rabobank. Despite rising milk prices, global dairy production in major exporting regions is lagging behind expectations. Year-on-year (YoY) growth in Q4-23 fell by 1%, and anticipated this trend to be continued in H1-24. A full recovery in milk production volumes is only expected in H2-24, resulting in annual volumes likely similar to 2023 levels. Higher milk prices are expected throughout 2024, offering improved margins for dairy farmers in Europe. Rabobank forecasts a return to milk prices of around USD 55 per 100 kilograms (kg), including surcharges, by the seasonal peak.

Recent geopolitical developments, including conflicts in the Red Sea, have created opportunities for the European Union (EU) and United Kingdom (UK) dairy exports to North Africa and the Middle East. Favorable exchange rates between the EUR and USD are further enhancing EU competitiveness. However, rising EU dairy prices and limited product availability may restrict export volume growth in the future. Trade with Southeast Asia and China faces challenges due to weaker demand and logistical hurdles.

Dutch milk supply in 2023 increased 1% YoY, but experienced a decrease of 2.8% YoY in Q4-23. Milk processing trends shifted towards cheese and condensed milk production, while whole milk powder, butter, and drinking milk production declined. This reflects changing market dynamics and prioritization of higher-value products. Dutch milk supply in Jan-24 was down more than 3% YoY. Rabobank forecasts a decline of approximately 2% for H1-24, partly attributed to weather conditions impacting agricultural activities. The national livestock buyout scheme in the Netherlands is expected to have a limited impact on dairy farming and milk volumes in 2024. While applications have been received, final decisions are pending.

EU Cattle Population Declines Persist in 2023

According to recent data released by the EU Statistical Office (EUROSTAT), there is a discernible trend of declining cattle population across the EU. As of Nov-23, the EU cattle herd stood at 73.87 million heads, representing a YoY decrease of 1.3%. This decline extends a multi-year trend, with the herd shrinking by 7.3% since 2016. The decline is observed across various member states, including traditional production powerhouses like France and Germany.

The EU cattle population is unlikely to reverse its current trajectory in the near future. Additionally, a concerning trend is the above-average decrease observed in young cattle populations (under one year old) at 2.1% YoY, potentially impacting future herd replacement rates. The decline in young animals not intended for slaughter was even sharper at 2.4% YoY. Persistent decline in the EU's cattle population, raising concerns about long-term livestock production capacity within the region.