RaboResearch: More affordable feed brings farmers relief but signs of weakening demand for dairy

Continued optimism about Brazil’s second corn crop, combined with large Russian grain exports, renewal of the Black Sea Grain Initiative, a good upcoming EU harvest, and accelerated US corn planting, continue to drive agri-commodity prices lower, said the team.

However, Chinese dairy farm margins remain under pressure despite falling feed prices, noted the outlook.

And in the US, lower milk prices have outpaced the decline in feed costs, putting farmers’ margins under additional pressure and into negative territory – a sharp contrast to the close-to-record profitability farmers experienced this time last year.

Lower demand

Moreover, the cumulative effects of high food price inflation over the past 24 months, along with slowing economic activity in 2023, have translated into lower dairy demand in developed and emerging markets, reads the publication.

Various companies in western Europe, Australia, Brazil, China, and other emerging markets are experiencing weaker-than-expected sales this year, with households in many regions remaining under financial pressure.

Regional outlook 

Rabobank has tempered its 2023 milk production forecast from last quarter’s estimate of 0.7%. Milk production from the Big 7 export regions is anticipated to grow by 0.5% now year-on-year, following 2022’s decline of 0.9%. The slower growth is attributed to stagnant output in the EU, said the team.

“Looking ahead to Q3 2023, our analysis suggests that EU milk production will be flat YOY in the upcoming quarter. While farmers have managed to sustain production growth despite lower farmgate milk prices, primarily due to lower feed costs, weather volatility in some regions could slow deliveries further.”

Projections for US milk growth are lower; the dairy herd is starting to decline as farmers respond to lower margins.

While profitability remains challenging for New Zealand farmers, current estimates indicate that output could be higher next season. Water and feed availability should also support production growth in Australia next season, commented the dairy market specialists.