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Hot weather slows down global milk

Global milk supply is slowing down, except in New Zealand, where they experienced near-perfect weather conditions. This is according to the Dairy Quarterly Q3, published by Rabobank.

According to the report, the combined year-on-year milk supply growth across the Big 7 exporters (EU, US, New Zealand, Australia, Brazil, Argentina and Uruguay) slowed during Q3 of this year. This is mainly due to the hot and dry weather in Australia and Europe. But also expensive feed is having a greater impact than before, as seen in Argentina for example.

Dairy herd numbers shrinking

The impact of more expensive feed costs and tighter margins for milk producers globally are now evident and will continue into 2019. National dairy herd numbers are shrinking in Australia, Europe and the US, as a result of producers scrambling to manage costs. While Rabobank expects combined global milk supply across the major export regions to grow, production will only lift very modestly over the next 12 months, well in line with consumption trends.

Rabobank also reports on what to watch in the near future. Photo: Shutterstock / Pavel Ignatov
Rabobank also reports on what to watch in the near future. Photo: Shutterstock / Pavel Ignatov

Highlights per regional dairy market:

EU

EU milk growth continued a 17-month trends into July despite the dry weather. The weather effect on feed availability will play out from Q4 2018 onwards.

US

Milk prices in Q3 2018 have improved after an initial drop in dairy commodity prices, as key trading partners implement tariffs on selected dairy products.

New Zealand

Favourable weather has provided outstanding conditions for the 2018/19 season so far. But new feed regulations may prove challenging for milk flows at the back end of the season.

China

China’s import growth is anticipated to remain buoyant in the second half of this year. But trade war uncertainties cast a shadow across 2019.

South America

High local grain prices are impacting farmers’ margins and will curb milk production growth. Meanwhile, local demand remains fragile, as Argentina’s recession continues and Brazil awaits general elections in October.

Australia

A shortage of feed and fodder has gripped the sector and wiped out any change of a sustained recovery in milk production in the 2018/19 season.

What to watch in Q4 and Q1 2019

Rabobank also reports on what to watch in the near future. One of them is the trade war between the US and China. Further escalation of the trade tension is likely. Considering that the US is the third-largest dairy exporter to China, the full extent of the the trade war is still uncertain.

Also the currency has an impact on the global dairy markets. Most currency values have softened against the US dollar over the course of the year. Rabobank expects the US dollar to remain well supported moving into 2019, and expensive inputs for farm cost structures look set to continue.

The market is also watching the New Zealand milk output. With near-perfect weather across winter and spring (so far), it is not yet known how high the production numbers will bounce this year.

Lastly, the NAFTA. The US and Mexico have completed negotiations, but an agreement between Canada and the US remains allusive. Any opening of the Canadian market could be a bonus for US dairy exporters. It is unclear, however, as to whether the US can move forward with a revamped NAFTA with only Mexico. Some lawmakers say they won’t go along with a deal that leaves Canada out.

Also read: Interview: Kevin Bellamy from Rabobank

Source: Rabobank

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