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Friday 14 December 2018

Dairy outlook stable despite global threats

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Balanced global milk supplies and relatively stable prices are forecast for the back end of 2018 and across most of 2019, according to the latest Rabobank quarterly review.

However, uncertainty surrounding Brexit, continuing trade tensions between the US and China, and increased milk output in New Zealand are all identified as potential threats to market stability.

Global dairy markets have been helped by stronger Chinese buying in 2018. Imports were up 11pc from January to July compared to 2017, and are forecast to increase 16pc in the second half of the year.

A slowdown in milk supply growth across all the main production regions - apart from New Zealand over the last few months - has also been a feature of 2018, with output increasing by just 1pc in Q2 and into Q3 compared to 2017.

This level of supply growth will be absorbed by increasing global consumption, Rabobank states.

Drought in Europe, and more expensive feed in the US and Argentina, hit milk production in all three regions, Rabobank points out.

"The impact of more expensive feed costs and tighter margins of milk producers globally are now very evident and will continue the squeeze into 2019," the review predicts.

Despite the scorching summer weather, however, European milk production grew 1.6pc to the end of July compared to 2017, and the review is forecasting increased supplies through the final quarter on the back of improved returns and a 1pc lift in demand.

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The US dairy sector has taken a hit over the last 12 months, the Rabobank report notes, with margins back 30pc and cow slaughterings up 5pc in July.

But the continuing recovery in the US economy is expected to be reflected in stronger domestic demand, with dairy growth forecast to hit 1.2pc through 2019.

Increased domestic demand is expected to offset what the report describes as "strong headwinds" for US exports, as a result of a 5pc appreciation in the dollar, and US trade difficulties with both China and Mexico.

In contrast to Europe and North America, New Zealand production has bucked the 'static' trend, with new season production bouncing back with a bang, Rabobank reports.

Milk production for June to August is running 5pc ahead of 2017 on the back of mild spring weather.

And Rabobank forecasts increased Kiwi dairy exports through the second half of 2018 and the first six months of 2019.

Meanwhile, Glanbia Group is now the 14th biggest dairy operation globally, according to the latest rankings from the International Farm Comparison Network (IFCN).

The IFCN figures put total milk intakes by Glanbia at its Irish and North American sites at 6.5 million tonnes. This equates to 0.8pc of global milk production.

The top three dairy companies were Dairy Farmers of America with an intake of 29.2 million tonnes, Fonterra with 23.7 million tonnes, and the French headquartered Group Lactalis which processes 19.6 million tonnes annually.

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