Welcome to our weekly market update, in which we will tell you about the developments in dairy the past week and our expectations for coming week.
Hi everyone, welcome to the market update.
This week we will make a quick round through the important regions in the world, with a comprehensive overview.
Starting from our home base, Europe with little news to note. Food inflation is slowly but surely going down as the lower commodity prices are reaching the shelves. The mix of commodities is now reaching a milk return price below the current farmgate prices. This means, further reductions by processors can be expected. Combined with high feed prices, this will probably result in lower output in H2 2023.
In the US, the effects of poor farm economics are already visible. Culling numbers are high and prices bounced up based on this expectation. Cheese stocks are still a problem, holding the market back from further recovery. This has resulted in weak prices for whey and whey derivatives as well, suffering from a lack of demand.
New Zealand weather conditions seem favorable, but the season has started with a smaller herd size, limiting the growth potential. With limited opportunities to change the product mix, the big question is who will absorb this season’s WMP production. But history tells us that low prices always spark some unexpected demand.
Speaking of demand, the world is still very diffuse. Countries like the Japan, the UAE and Singapore show very low food inflation numbers, where countries like Egypt and the Phillipines are still suffering immensely from the high input prices. This has affected demand dramatically and has been the main cause of the weak market we have witnessed over the past 6 months. The Mexican demand is holding up rather well and this is expected to continue past their own milk flush. Chinese demand is recovering very slowly, but with dire economic prospects the pace of recovery will probably remain slow. It would be interesting to compare current numbers with pre-covid figures as year on year statistics are distorted by 3 abnormal years.
With farmgate prices under pressure, limited growth potential from New Zealand and demand just recovering slowly, the market seems to have find a bit of balance. But the supply and demand developments are moving in opposite directions. Supply will probably show a decline in 2024, driven by below break even farmgate prices, while buyers wake up triggered by the current low prices. This scenario has been long awaited, but has not materialized due to the lack of demand. But it seems closer than even.
Have a great week and we welcome your questions and remarks.
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