As 2022 came to a close, dairy commodity values were declining quickly, pulled lower by both a recovery in milk supply and weakening demand. Throughout the first quarter of this year, weaker milk prices have persisted and created a squeeze for dairy farmers, who continue to face higher input values and an overall elevated cost of production versus what was to be considered average.
In Rabobank’s Global Dairy Quarterly, published in March, this squeeze was a major theme in describing the current global situation and the expectation for near-term months. In addition to the margin squeeze felt by dairy farmers, consumers face persistent inflation and higher interest rates that drive more frugal purchasing behaviors. Dairy demand has not declined precipitously, but shoppers and restaurant diners are searching for value.
Within dairy commodities, a price bottom has likely been reached in recent weeks, with most products seeing some support emerge after prices fell to multi-month or, in some cases, multi-year lows. From a supply standpoint, Northern Hemisphere milk volume remains higher than the prior year, but a retraction in Southern Hemisphere output has made global growth more muted. Demand has weakened, but other key global exporting regions faced the brunt of weaker imports, allowing the U.S. to have yet another record export year on both a volume and value basis in 2022.
Lucas Feuss
April 6, 2023
hoards.com
