Hot Weather Slows Global Milk
Global milk supply is slowing, except for New Zealand, which has experienced near-perfect weather conditions. This is based on the Dairy Quarterly Q3 published by Rabobank.
According to the report, milk supply growth in the seven major exporting countries (EU, USA, New Zealand, Australia, Brazil, Argentina and Uruguay) slowed year-on-year in the third quarter of this year. This is mainly due to the hot and dry weather in Australia and Europe. However, as seen in Argentina, expensive feeds have a greater impact than before.
The number of dairy herds is shrinking
The global milk producer's feed costs are higher, and the impact of tighter profits is now evident and will continue until 2019. The number of dairy herds in Australia, Europe and the United States is shrinking as producers scramble to manage costs. Although Rabobank expects global milk supply to increase in major exporting regions, production in the next 12 months will only increase slightly, in line with consumer trends.
Rabobank also reported on what to watch in the near future. Photo: Shutterstock / Pavel Ignatov
Highlights of the dairy market in each region:
Despite the dry weather, EU milk growth continued the trend for seven years and until July. The impact of weather on feed supply will begin to function in the fourth quarter of 2018.
Since the major trading partners imposed tariffs on selected dairy products, the price of milk in the third quarter of 2018 improved after the initial decline in dairy commodity prices.
So far, favorable weather has provided excellent conditions for the 2018/19 season. However, new feed regulations may pose a challenge to the milk flow at the back end of the season.
China's import growth is expected to remain active in the second half of this year. But the uncertainty of the trade war has brought a shadow to 2019.
High local food prices are affecting farmers' profit margins and will curb the growth of milk production. At the same time, due to the continued economic recession in Argentina and Brazil waiting for the October general election, local demand remains fragile.
Feed and feed shortages plagued the industry and eliminated any changes in the continued recovery of milk production in the 2018/19 season.
What to watch in Q4 and Q1 2019
Rabobank also reported on what to watch in the near future. One of them is the trade war between the United States and China. Trade tensions may escalate further. Considering that the United States is China's third-largest dairy exporter, the full extent of the trade war remains uncertain.
In addition, the currency has an impact on the global dairy market. During the year, most monetary values weakened against the dollar. The Dutch cooperative bank expects that the US dollar will continue to be well supported by 2019 and the expensive investment in agricultural cost structure will continue.
The market is also focusing on milk production in New Zealand. As the weather in winter and spring is near perfect (so far), it is unclear how high the volume will be this year.
Finally, the North American Free Trade Agreement. The United States and Mexico have completed negotiations, but the agreement between Canada and the United States remains controversial. Any opening in the Canadian market could be a bonus for US dairy exporters. However, it is unclear whether the United States will be able to make progress with the transformation of the North American Free Trade Agreement with Mexico alone. Some legislators said they would not agree to the Canadian agreement.