Global Dairy Quarterly Q1 2022: How High for How Long?
Volatility loves uncertainty, and there is no shortage of uncertainty in global dairy markets. Even before the Russia-Ukraine conflict, global dairy commodity prices were soaring due to a supply shortfall. The major export regions are grappling with poor weather or margin erosion, resulting in a year-on-year deficit that was much worse than anticipated in 2H 2021. As the shortfalls are unlikely to go away in the near term, Rabobank expects a continued decline in 1H 2022 milk production in the Big-7 exporting regions, vs. last year’s high comparable, before a mild recovery starting in 2H 2022 and into 1H 2023.
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Report summary:
Farmgate milk prices have followed commodity prices higher worldwide, with more potential upside in some regions. Still, the rising costs of inputs, lack of labor, unfavorable weather, and variable feed quality and prices continue to limit the production response by producers.
Dairy exports are expected to slow in 2022, after growing by 4% in 2021, despite all the supply chain challenges. The export growth seen in 2021 is unlikely to be repeated in 2022, as the supply deficit significantly reduces the exportable surplus from the Big-7 export regions. High-priced dairy commodities could take a bite out of importers’ appetites. Conversely, rising oil prices have supported WMP prices in the past, and the elevated food security risk could result in strategic buying activity.
Inflationary pressure is running rampant around the world, with an increasingly worsening outlook, begging the question, “How high for how long?” Dairy commodities will stay elevated through mid-year amid the constrained supply. The longer-term outlook hinges upon consumer behavior and normalized market conditions, both being very unpredictable.
