There is growing evidence that the bottom in the dairy commodity markets has passed, but a “slow recovery” is likely as prices move back to long term averages, Rabobank warned today (Tuesday, December 5).
The bank’s latest Global Dairy Quarterly report highlights that limited milk supply growth and “lackluster” demand led to soft commodity pricing this year but the bank expects prices to “move higher” next year.
EU dairy commodity prices have strengthened from mid-August to mid-November it also noted.
“The base case is for a slow recovery in commodity prices.
“However current fundamentals provide the perfect ingredients for price volatility and a possible market whiplash.
“A high degree of risk and uncertainty permeates all global markets include dairy,” the report outlined.
Rabobank said any recovery in commodity prices will be against a backdrop of “geopolitical instability risks, volatile energy markets and weak macroeconomic conditions”.
Dairy demand
It also highlighted that demand will be a key factor to monitor next year with key challenges remaining on the horizon including high dairy inflation.
According to the latest Rabobank report China’s import appetite for dairy commodities is expected to “flatline” in 2024 which it said would be a positive result because there has been a “withdrawal from the global markets” over the last two years.
Separately Rabobank’s milk supply outlook for 2024 has “weakened” with sluggish growth expected across most export markets.
“It’s a complex story of high dairy inflation, broader cost of living issues and weak consumer confidence remaining on the horizon,” Rabobank detailed in its latest report.
In the EU it expects that milk supply is moving into a “year on year decline” on the back of weak farm margins, “high comparables” and unfavourable weather conditions.
Milk prices
Rabobank expects milk prices to strengthen in quarter one next year due to recent improvements in underlying European dairy commodity prices.
A change in position from the trend over the last 12 months when EU milk prices fell back dramatically.
“For Germany, the Netherlands, Ireland and Denmark the year on year decline exceeded 30%,” Rabobank highlighted.
However, Rabobank said that with the 2024 feed cost outlook looking “more favorable”, some regional milk prices have recently increased, boosting farmgate margins.
“Several large dairy processors in northwest Europe have already announced higher milk prices for November and December,” the report outlined.