World Milk Production Begins New Year Weak

Declining world milk supplies have tightened global dairy markets and contributed to some recent price gains, such as the recent rise in the Global Dairy Trade index. According to Monica Ganley, analyst with the Daily Dairy Report and principal of Quarterra, an agricultural consulting firm in Buenos Aries, “Milk production has been slipping across the world’s main dairy-exporting regions and countries as margin pressures, weather challenges, and regulatory burdens weigh on volumes.”

In October, combined output across the world’s top-five dairy exporters fell 1.2% below year-earlier levels, marking the third consecutive month of contraction and the deepest year-over-year loss since May 2022. The most severe absolute losses occurred in Europe, Ganley said. In the European Union and United Kingdom combined, milk production tumbled 1.7% in October, a drop of 224,000 metric tons (MT).

“The reduction in the EU and UK milk supply represented 70% of the total decline seen across all the key exporters. Industry stakeholders suggest that falling milk prices this past autumn undermined profitability, and as expectations intensified for an increasingly restrictive regulatory environment in Europe, many producers chose to exit the business permanently,” Ganley said.

Losses were also seen across the Atlantic. For example, in the United States, thin margins and a declining milk herd pushed year-over-year production down 0.7% or 61,000 MT. Milk output slipped another 0.6% in November, compared to the prior year, marking the fifth straight month of year-over-year declines in the United States. In November, the U.S. milk-cow herd shrunk to a three- year low, setting the stage for sustained contraction in U.S. milk output.

Meanwhile, in Argentina, where a new government has created an economic shock, output fell 4.3%, or 49,000 MT. Argentina’s new president, Javier Milei, has promised to restore the country’s ailing economy by slashing government spending and implementing sweeping reforms. Many of the proposed reforms have profound implications for the agricultural and dairy sectors, Ganley reported. In the first week following his inauguration, Milei announced a more than 50% devaluation of the official exchange rate, which will have multiple impacts for the dairy industry, she said.

“For exporters, it will increase the amount of money that hits their bank accounts, since exports are paid at the official rate. However, it will also make dollar-denominated inputs more expensive for the sector in peso terms,” she said. “Another key initiative is the implementation of a 15% export tax across nearly all products. However, Argentina’s dairy sector was successful in securing an exemption from this rule. As a result, Argentina’s dairy exports will become more competitive in international markets as export taxes will be 0% as opposed to the 4.5% to 9% levied in recent years.”

In Oceania, New Zealand production dipped a modest 0.3% in October, while in Australia, the only key exporter to see volumes rise, output rose 2.1% vs. the same month last year, adding about 19,000 MT of milk to the global total.

“Looking forward, the situation remains precarious,” Ganley said. “Even though most of the factors that have been pressuring milk production lower are likely to persist, global demand remains weak, suggesting that further milk production losses could be necessary before milk and dairy product prices are able to move much higher.”

For more on milk prices, read:

• Are Milk Prices Ready to Rebound?
• Milk Price Predictions End on a Low Note for 2023, Dramatically Lower than Last Year
• Are Prices Ready to Turn Higher?
• Whey Market Appears to be Tightening
• Minnesota Lost More Than 50 Dairy Farms in November