Weekly Product Updates

W48 Dairy Update: 4.5% Surge in Russia’s Milk Production Cost, 11.6% YoY Decrease in China’s Dairy Imports

Cow Milk
China
Emerging Market Opportunities
Netherlands
Supply Chain Management
Published Dec 8, 2023
image

Milk Price Recovery Amidst Supply Challenges and Global Dynamics

In the upcoming months, a recovery in European milk prices is expected due to a decrease in milk supply caused by wet weather conditions and tight margins for dairy farmers, along with rising demand linked to weakening inflation and lower inventories. In Q3-23, milk production in the Netherlands slightly exceeded Q3-22 levels, but from Sept-23 onwards, lower milk prices, reduced margins, and extremely wet weather are projected to lead to a decline in milk supply compared to the previous year. Bluetongue disease is further contributing to lower production per cow. Anticipated decline in milk production in the Netherlands for Nov-23, Dec-23, and Q1-24. A 0.8% decrease in European milk supply is expected for Q4-23 compared to Q4-22, with the Q1-24 forecast adjusted to -0.6%. New Zealand is forecasted to see a 3.8% decline in Q1-24 milk production, while a 1% growth is projected for United States (US) milk production in 2024. Expectations of higher milk prices in the coming months arise from a sharp rise in European Union (EU) dairy prices since mid-Aug-23. While dairy raw material prices are expected to be stable in Q1-23, the recent revival of quotations, a relatively tight market balance, and lower inventories suggest a further increase in prices for the first months of 2024.

Financial Challenges in the US Dairy Sector

As the year-end approaches, the USDA released a report highlighting the substantial negative financial impact on the US dairy sector. Due to lower milk prices, cash receipts from milk marketings in 2023 are expected to decrease by USD 10.5 billion (18.3%) YoY. Offsetting about 12% of this decline, 2023 Dairy Margin Coverage (DMC) program payments are projected to be around USD 1.3 billion, a USD 1.1 billion increase from 2022. Among production costs, interest expenses are expected to rise significantly, reaching USD 34.4 billion in 2023, an almost 43% increase YoY, due to higher debt levels and increased interest rates. While this level is the highest to date in nominal terms, the report notes that, in inflation-adjusted dollars, interest expenses were at least 50% higher in the early 1980s. Substantially lower US net farm income, net cash farm income, and cash receipts are forecasted for 2023 compared to the record highs of 2022.

Exploring the Factors Behind a 4.5% Surge in Russia’s Milk Production Costs in Oct-23

The operating cost of milk production (RMCI) increased by another 4.5% in Oct-23 compared to the previous month. The growth was driven by a 2% increase in prices for combined feed (mixed feed) for cattle, a 1% increase in vegetable cakes and other raw materials, and the accelerated weakening of the RUB, coupled with a 0.89% increase in general inflation. The cost of raising dairy cattle has risen by approximately 16% YoY, with notable increases of 32% YoY in costs for cakes, 12% YoY in electricity, 10% YoY in diesel fuel, and 9% YoY in feed. Labor costs also rose by 20% YoY. The National Union of Dairy Producers (Soyuzmoloka) observed the stabilization of raw milk prices. In Sept-23, RMCI increased by 4.8%, surpassing the previously predicted value of 0.3 percentage points (pp), primarily due to a more significant increase in labor resource costs. Compared to the beginning of 2017, the cost of milk production in Oct-23 increased by 75.6%, and in Sept-23, it increased by 68.1%. Average comparable purchase prices for raw milk increased by 15% from Jan-23 to Oct-23. According to Rosstat, the absolute price level in Oct-23 remained 9.8% lower YoY, amounting to USD 0.33/kg (RUB 30.6) for a product with 3.4% fat and 3% protein. Although raw milk prices have seen a 3.9% increase since Sept-23, the rate of cost growth is significantly ahead of that of purchase prices.

Poland’s Dairy Production Highlights and Export Dynamics in Jan-Sep 2023

From Jan-23 to Sept-23, Poland experienced a 7% increase in butter production, reaching 198,000 metric tons(mt), and an 8.5% rise in rennet ripening cheese production, totaling 288,000 mt. The unripened and curd cheese segment saw a modest 1% increase, totaling 385,000 mt, while osteoblast milk protein (OMP) production reached over 145,000 mt, marking a 3.5% YoY increase. Dairy product exports from Poland amounted to nearly EUR 2.6 billion during the first nine months of 2023, reflecting an 8% decrease YoY. Imports cost almost EUR 1.25 billion, a 4% decrease YoY, resulting in a positive trade balance of EUR 1.35 billion, an 11% reduction YoY. In the same period, EU countries comprised 67% of Polish dairy product exports, with revenues reaching EUR 1.75 billion, a 14% decrease YoY. Key recipients included Germany (18%), the Czech Republic (7%), Italy (over 5%), the Netherlands (4%), and Romania (4%). Non-EU countries accounted for 33% of Polish dairy product exports, generating approximately EUR 0.86 billion, a 9% increase YoY. Leading recipients among non-EU countries included Algeria (5%), Great Britain (5%), Ukraine (over 3%), China (nearly 3%), and Saudi Arabia (2%).

China's Dairy Import Decreased 11.6% in Jan-Oct 2023

From Jan-23 to Oct-23, China experienced an 11.6% YoY decrease in the import of various dairy products, totaling 2.442 million metric tons (mmt). The import volume amounted to USD 10.469 billion, reflecting a 10.8% YoY decrease. These imported dairy products were equivalent to 14.7 mmt of raw milk, marking a 9.4% YoY decrease.

Among these imports, 1.7512 mmt consisted of dry dairy products, reflecting a 9% YoY decrease. The import value for dry dairy products was USD 9.104 billion, a 12.1% YoY decrease. Liquid milk imports amounted to 690,700 metric tons (mt), indicating a 17.6% YoY decrease. The import value for liquid milk was USD 1.365 billion, a 1.1% YoY decrease.

In terms of major categories, large package powder, condensed milk, and packaged milk experienced significant decreases of more than 23% YoY, while infant formula and cream decreased by about 10% YoY. Conversely, whey powder and cheese products showed an upward trend, experiencing increases of more than 10% YoY.

Read more relevant content

By clicking “Accept Cookies,” I agree to provide cookies for statistical and personalized preference purposes. To learn more about our cookies, please read our Privacy Policy.