Global Dairy Quarterly Q1 2023: The Squeeze Is On
The dairy chain's participants – from producer to processor to end user – are being squeezed. Dairy producers’ milk prices have tumbled from their lofty 2022 levels while their cows digest new-crop feeds and forages priced at record highs. Dairy processors and cooperatives entered the year with expensive inventory, made with high-priced milk, being discounted to clear the markets. Meanwhile, consumers are being squeezed by higher inflation and rising interest rates, resulting in more frugal purchasing behavior. Consumers haven’t left the dairy aisle, but they are looking for value.
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Report summary:
Greater year-on-year milk production growth emerges in 2023 in the key export regions against low 2022 comparables. Farmgate milk prices are catching up to global commodity market trends and moved lower in 2023. Meanwhile, expensive input costs remain a clear headwind worldwide and combined with lower milk prices result in farm-level margin pressure. In response, dairy cow slaughter rates have escalated.
Global dairy trade in 2022 was better than expected, despite China’s retreat. Exports to key importers including Mexico, Indonesia, Japan, Algeria, and South Korea, among others, surpassed 2021 levels. Through November 2022, trade in total dairy product volume was within 1.5% of the previous year, despite about a 20% reduction in China’s imports. China’s Q1 2023 dairy imports are expected to fall short of Q1 2022 levels, with renewed buying interest developing in Q2 2023.
The macroeconomic environment remains complex. Inflation has slowed, but primarily due to falling energy prices. Core services inflation remains strong. The labor market is still very tight in certain sectors, and the central banks continue to raise rates. There are increased signs of a slowdown in household consumption, which is likely to continue deteriorating over the coming months.
A little more milk and a little less demand have contributed to weaker dairy commodity prices in Q1 2023. However, stock levels in the key exporting regions are not burdensome. Since our last report, we’ve tempered our optimism for year-on-year milk production growth. Lower global cheese, milk powder, and whey prices, year-on-year, are expected to support exports. Still, much depends on internal Chinese policies and broader demand resilience to support dairy product prices in 2023.
