THE slowdown in global milk supply growth has “set the stage” for a recovery in milk prices for dairy producers around the globe, according to a visiting North American dairy expert.
Out from Chicago as a keynote speaker at the recent Australian Dairy Conference in Canberra, Rabobank’s global dairy strategist Mary Ledman told the crowd of over 400 dairy farmers and industry leaders that the supply deficit was likely to be a feature of global dairy markets into the more medium-term.
She said consumption growth – particularly in developing countries – is pegged to rise at a fast rate that will challenge supply growth to keep pace.
“Our modelling of dairy supply and demand out to 2023 suggests there could be a global trade deficit of 4.4 million tonnes (milk equivalent) in five years’ time,” Ms Ledman said.
“However, that said, if the world is demanding 101.2 million tonnes of milk equivalent, and is only supplying 96.8 million tonnes of milk equivalent, I have no doubt dairy farmers will produce it.”
But she said these fundamentals bode well for the global market outlook, “with the milk prices of 2015 to 2018 likely to become the ‘new norm’”.
That said, prices in 2017/18 had been tempered by intervention stocks in the EU, “and we have already seen the impact of that ‘big bang’”.
“But we are now operating in an unencumbered market, where there are not a lot of government regulations to either support, or retard, milk supply growth,” she said.
“And as such, there is potential upside to prices given global stocks are so low.”
Ms Ledman, who has been analysing the dairy market for more than three decades, said there has recently been a “change in the big actors on the global dairy stage” – with Europe now accounting for 30 per cent of global production, the US 20 per cent, and Australia and New Zealand five per cent combined.
“As such, what happens in Europe, and the magnitude of any change in European production, has a big impact on global trade,” she said.
“For example, if EU production is up by one per cent, that is basically the same as production rising by five to six per cent in Australia and New Zealand.”
European milk supply growth had been pared back to a negative growth rate in recent months, she said, due to weather, input cost pressures and the phosphate quota in the Netherlands.
“And in 2019, while we see a return to a positive growth rate, at less than one per cent, this will be down on the growth rates in previous years, and well down on 2015 levels when the quotas were removed.”
In the US, Ms Ledman said, “you would be hard pressed to find a year where production hasn’t increased”.
However, there are signs the US dairy herd is trending lower for the first time in five years, she said.
“Milk production growth is expected to be less than one per cent in the first half of this year, before returning to a growth rate of around 1.5 per cent,” she said. “But this rate of growth will remain dependent on the recovery in milk prices.”
Ms Ledman said while all signals were pointing to a slowdown in global supply growth, she cautioned there was “plenty of flex in the EU and US to respond quickly to market conditions” given their cows are largely housed in barns.
This was in contrast to Australia and New Zealand, she said, which are dependent on Mother Nature, as production is predominately constrained by weather conditions.