The fourth quarter of the dairy market is coming to an end, and as this year draws to a close, dairy economic analysts reveal that the start of 2023 is looking bleak for the dairy industry. Weakness in the global dairy market will be a central issue, with regions and products showing a big difference in price weakness, according to RaboResearch Food & Agribusiness’ Global Dairy Quarterly Q4 2022 report.
Analysts have found that at the end of the year, farmers around the world will see increased milk production, strong cheese stocks and slightly better milk prices. However, their forecast for 2023 hinges on continued challenges related to input costs and China’s efforts to stay competitive in the space.
Milk production in the United States is on the rise.
Overall, milk supply has increased in regions such as the United States, Canada and Europe. In the fourth quarter, the USDA reported U.S. milk production increased by 18.50 billion pounds, a 1.2% year-over-year increase from the Q4 quarter. ‘last year. The number of dairy herds in the country increased by 0.3%, ending the year at around 31,000 head. Milk production per cow also saw a slight increase of less than 1% to 2,001 pounds from 2021. The breakdown equates to 74.2 pounds per lactation per day, half a pound per day more than the last year.
But farm gate milk prices follow global commodity market trends, and experts believe they will be lower by 2023. In mid-November, the USDA announced that the trade price international dairy was trading lower than the US price, around $2.57 for the month.
Experts also say input costs will remain a headwind around the world; high costs combined with lower milk prices could put pressure on margins at farm level. And the recent growth momentum in milk supply will continue into the first quarter of 2023.
All eyes on China.
Analysts are watching China as the country continues to buy inventories of dairy products such as cheese, butter and cream cheese that have accumulated over the past year. This is an opportunity for buyers to enter a calmer market.
One of the main things that will affect Chinese buyers is New Zealand’s zero-tariff milk powder quota that stems from the free trade agreement. Buyers are running out of time to acquire New Zealand’s milk powder purchases in the late third and early fourth quarters of 2023 and to secure the zero tariff rate quota for its milk powder imports. The quota applies to 2023 and was fully exhausted earlier this year and will disappear by 2024, according to RaboBank forecasters.
As a result, there could be a change in Chinese shopping habits in 2023, mainly because there is a lot of uncertainty about the country’s slow implementation of its new measures to ease the zero-Covid policy. There is growing concern over the Covid situation in China as there has been little to no sign of an immediate let up. Analysts expect price risks to head higher if conditions change.
Many second and third tier buyers entered the market in the last month of the fourth quarter and are needed to take over at the beginning of 2023. As a result, China’s first quarter for dairy imports in 2023 could be below last year’s levels. , but renewed buying interest is building for its second quarter.
The market will continue to test consumers.
Around the world, consumer prices for dairy products have been rising all over the world. Demand for dairy products is multifaceted, with household size and income being determining factors. Consumer confidence will continue to be tested, especially as disposable incomes are affected by economic pressures.
The consumer price index in the United States rose 16% year over year in the third quarter. However, domestic demand for milk solids only increased 1% over the same period, while exports soared 6.2%, a 2% gain from last quarter.
In the United States, demand was slightly lower due to high retail prices. For example, the USDA Milk Report found that consumers were buying less butter at the start of the holiday season than they usually would because butter is expensive. But, globally, with cost of living challenges, US consumers have been more defiant than European consumers, who are feeling a retail pinch. There has also been resilience in the Southeast Asian market, but consumers are buying smaller volumes like the US consumer.
As holiday shopping wanes, cheese and butter markets will find a new equilibrium with 2023 prices. In the United States, cheese and butter inventories are not heavy. End-users are encouraged by analysts to hit the market for a bargain, as market opportunities can be elusive in these competitive global dairy markets.
Cheese still rules.
Cheese exports in the first quarter of the year were up 17% year-on-year. However, rising prices dampened export growth in the third quarter to nearly 4.2% year-on-year. US trade with Mexico, one of its top dairy trading partners, increased 17% along with South Korea, with a 10% year-over-year increase in imports in the third trimester.
In November, the National Federation of Milk Producers announced that several member cooperatives had obtained 50 contracts. These contracts add 6.2 million pounds of American-style cheeses, 348,000 pounds of whole milk powder and 1.2 million pounds of cream cheese to CWT-assisted sales by the end of this year. These stocks will go to customers in Asia, Central America, the Caribbean, the Middle East-North Africa, Oceania and South America and will be shipped from November to May 2023.
Exports of skimmed milk powder and skimmed milk powder totaled about 620,380 tons, down 9% annually. However, on a positive note, third quarter exports to Mexico, at 90,583 metric tons, exceeded those of 2021 by 1.8%, representing the first quarter of 2022 with an increase in sales to Mexico of one year to the next.
Exports of dry whey averaged about 163,280 metric tons from the third to fourth quarters, down 6% from 2021. Experts say the cause is mainly due to a 30% drop in sales to China, which accounts for approximately 45% of sales. US dry exports.
More purchases for US food aid.
The USDA could prepare to use about $1 billion to purchase food for food banks, with an additional $500,000 to expand local procurement or purchase programs and an additional $500,000 to purchase food for educational institution breakfast and meal programs. Additionally, experts are still determining how much dairy the government plans to purchase in 2023. This is known to result in more government purchases, not less, which will support fluid milk, cheese and butter markets. .
Class IV milk prices will remain high in the new year for producers.
In the United States, Class IV milk prices are expected to maintain a slight premium above Class III prices through 2023 due to high butter prices. Abundant supplies of cheese and dry whey will cap the price of class three milk. Experts predict Class III will see a 23 cent rise this month from November and is expected to fall into the mid-20s by January and trade lower in February.
Class III is at 20.30 cents per hundredweight, which averages about 2.5 cents more than $17.60, the five-year moving average. With Class IV, it was $23.35, but it is only expected to drop by $2.75, or $20.60 in February 2023. Experts also predict that the 12-month future price of Class IV is expected to be about 20.95 cents per quintal, or 4.32 cents. a quintal, more than $16.63, the five-year moving average.
To read Rabobank’s full report, click here.
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