Dairy farmers are well aware that milk checks have been anything but spectacular for more than a year now. However, it seems like prices have finally started to turn the corner. But will this small rebound be short-lived? According to a recent report from Rabobank, analysts believe prices will continue to recover, just slower than expected. Here are two of the main reasons why.
Buyers Have Already Stocked Up
Towards the end of 2023 and into early 2024, milk markets began to experience a slight upswing as buyers took advantage of lower prices and stocked up on dairy products. Though this has offered some short-term relief for producers, analysts believe that this price recovery still has some additional headwinds to face.
“After stocking up on lower prices, buyers are turning more cautious,” says Andrés Padilla, senior analyst of beverages, dairy, packaging and logistics at Rabobank. “Dairy buyers took advantage of low prices to replenish stocks. However, in anticipation of a seasonal peak in Northern Hemisphere milk production, sentiment is shifting in most regions, with purchasing slower at current price levels.”
Buyers aren’t the only ones slowing down on purchasing. Rabobank reports that consumers are also feeling the pinch of higher prices. While unemployment remains close to record lows in most large markets, consumer sentiment is gloomier than anticipated.
“Inflation remains above target in most countries, and high interest rates continue to pressure debts and consumer spending at a time when credit plays an important role after cumulative inflation in recent years,” Padilla adds.
China is Importing Less Milk
China has stepped up its game when it comes to milk production. In fact, Rabobank reports that the country’s milk production was up 5.1% year-over-year. While consumer sentiment of dairy in China remains weak, much of the production growth stems from industry and manufacturing rather than household consumer consumption.
“Chinese consumption remains subdued on the back of a weak job market and low consumer confidence despite stronger sales earlier in the year during the Lunar New Year period,” Padilla says. “China’s net imports are expected to be 8% lower in 2024 compared to 2023.”
According to the report, China’s increasing domestic production is reducing its need for imports – a trend that will likely continue to challenge the global dairy market in the near term. This combination of stronger milk production and weaker consumer demand will diminish the domestic deficit to around 11 million metric tons, and SMP import volumes are likely to decline by 20%-30% compared to 2023 levels.
