Mixed outlook for global dairy sector for 2023

But there is a clear divergence between regions and dairy products, according to the latest quarterly dairy report from Rabobank. It says the large, domestically supported cheese and butter markets in the EU and US remained elevated but lower than the highs posted earlier this year.

At the other end of the scale, a 9% decline in Oceania GDT index prices over the last 3 months have permeated through the global milk and powder markets.

Lower farmgate milk prices

The report says farmgate milk prices are now catching on to global commodity market trends and will move lower in 2023. Meanwhile, expensive input costs remain a clear headwind worldwide and, combined with lower milk prices, will result in farm-level margin pressure. However, the recent milk supply growth momentum will continue into the first half of next year.

It also highlights the opportunities existing for buyers to enter a quieter market, especially with the Chinese market set to continue to digest the stocks accumulated over the last year. Second and third tier buyers have stepped into the market over quarter 4 and are needed to pick up the slack in early 2023.

China’s first quarter of next year is likely to see dairy imports lower than the same period in 2022, with renewed buying interest developing in quarter 2.

Dairy consumer prices have lifted on supermarket shelves and out-of-home menus around the world. While dairy demand is complex, the resilience shown so far will be further tested by waning confidence levels as disposable incomes take a hit.

Emerging markets, including tier 2 and 3 buyers, are most at risk due to projected inflationary impacts on consumer budgets in the first half of 2023.

Looking further ahead, Rabobank analysts say the underlying global market fundamentals remain skewed downwards. Much depends on internal Chinese policies and broader resilience for dairy demand. Weaker supply growth has kept dairy commodity prices relatively elevated, but fragile growth is on the horizon, although dependent on a meaningful reopening of China in the new post-Covid world.

Dairy demand is likely to get weaker in the short term before any improvement, with many economies experiencing broad-based food inflation.