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Shrinking Global Milk Supply Likely to Persist

Fran Howard

March 3, 3022

A shrinking global milk supply and robust world demand have been driving U.S. dairy product prices into uncharted territory, a situation unlikely to change anytime soon.

Monica Ganley, analyst with the Daily Dairy Report and principal of Quarterra, an agricultural consulting firm in Buenos Aires, said that and scarcer milk supplies could keep dairy product prices firm for the foreseeable future.

“After boasting more than two years of continuing expansion, cumulative production across the world’s top-five dairy exporters slipped relative to the prior-year in each of the last four months of 2021,” Ganley said.

In December, the latest figures available, collective output in Argentina, Australia, the European Union, New Zealand, and the United States fell 1.3% below December 2020’s volume. According to her calculations, the December decline represented a loss of 748.9 million pounds of milk and was the deepest year-over-year contraction since late 2016, when weather complications in New Zealand and EU policy undercut global production.

“A plethora of both structural and temporal challenges have been pushing back on world production,” she said. “While common themes exist across the globe, each supply region is facing a unique mix of challenges.”

In the Northern Hemisphere, for example, cost inflation has undercut producer margins, discouraging expansion. The U.S. dairy herd is shrinking, and dwindling heifer numbers indicate producers will not be bringing enough cows into the herd to offset culling. In Europe, mounting environmental pressures and failure to convince younger generations to take over their families’ farms have accelerated attrition, she added.

Meanwhile, in the Southern Hemisphere, weather has played a key role in the milk production slowdown. Argentina, for example, was able to maintain positive year-over-year production growth through 2021, but volumes slipped 0.9% in January as blazing temperatures and drought stressed cows and diminished pasture quality, she said. This past week, Australia experienced its worst flooding in decades, and in New Zealand, a shortage of labor has exacerbated operating cost pressures, Ganley said.

At the same time the world’s milk supply is slowing, international demand for milk and dairy products has continued to grow.

“The collision of supply and demand has pushed dairy commodity prices upward and led processors to increase milk prices to encourage additional supplies,” Ganley said. “Milk prices are lofty the world over and have set new records in key supply regions, such as New Zealand, but high prices have been unable to deliver additional milk production due to rising costs.”

Operating costs are likely to stay elevated, driven by both increasingly adverse weather conditions in key areas and Russia’s invasion of Ukraine. Combined, Russia and Ukraine account for 29% of the world’s wheat trade, while Ukraine’s share of the world’s corn exports is close to 16%. Russia is also one of the world’s top crude oil exporters.

Even so, demand for dairy is poised to remain robust as Covid retreats, Ganley said, suggesting dairy prices will remain high for the immediate future at least.



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