December 9, 2022

Weaker global dairy markets expected next year as demand declines

The latest Rabobank quarterly report said increased food price inflation and a modest milk output recovery is expected to weaken global dairy markets and commodity returns in 2023, the UK Agriculture and Horticulture Development Board reported.

Food price inflation and rising interest rates are expected to strain consumer budgets, though the impact will vary by region. Despite rising prices, demand for dairy in the US has remained relatively stable, though it is reported that European consumers are beginning to feel the pinch of higher retail prices.

Demand in China has fallen as a result of lockdown policies that limit visits to retailers and foodservice outlets. This has slowed stock drawdown and reduced import buying. Import demand is expected to recover by the second half of 2023, depending on how much China's pandemic restrictions are relaxed.

High commodity prices have impacted affordability in more price-sensitive regions, reducing import demand. But the weaker US dollar has sparked some purchases.

With the exception of Australia, milk production is expected to increase in the majority of key exporting regions. The significant increases in milk prices in 2022 have helped offset rising input costs, and some growth has been recorded in the final months of the year.

Rabobank forecasts some production growth in 2023, but it will be muted by continued cost pressures on farmers and lower milk prices. Milk production in the key exporting regions is expected to rise by about 1% in the first half of the year.

Overall, the market's net impact of increased supply and decreased demand is expected to be negative. The magnitude of the downturn will be determined by the extent of the Chinese economy's reopening and the Northern Hemisphere's flush.

-      UK Agriculture and Horticulture Development Board