Dairy commodities prices: a bearish outlook

Following a year of high milk output and ingredients production, major dairy commodity prices have been slipping since October 2022 due to weak demand and high levels of production. Mintec predicts a bearish outlook for milk, cream, powders, butter, cheese and fats for the first quarter and a half of 2023 in Europe and the US. The analysts attribute the new market trend largely to decreased consumer purchasing power.

The price volatility in the liquid milk market during 2022 was followed by significant price reductions in Q4 2022, as mild winter weather led to high production levels.

In Europe, Mintec observed that the wide price difference between the spot market (around €350/mt) and at farmgate level (around €600/mp) is putting processors under pressure to reduce farmgate milk prices further. Prominent industry figures, such as Arla Foods UK’s Ash Amirahmadi, have warned against drastic price cuts that could spook farmers into producing considerably less milk.

In the US, powder markets are generally bearish, according to the most recent USDA Agricultural Marketing Service report. Domestic demand for non-fat dry milk is steady while for whole milk powder demand remains ‘quiet’. Demand for dry whey is firm, however, with higher prices in the Central and East US regions. WPC prices were also steady to lower, with some brands in higher demand than others.

In Europe, skimmed milk powders have experienced price reductions during H2 2022 due to limited demand, with buyers opting to wait for lower prices. According to Mintec, just over the last two weeks of January, prices for skimmed milk powder declined around $500/mt. Low buying interest from China has also impacted the European skim powder market.

The outlook is similarly bearish for whole milk powder, where inflation has rendered European products uncompetitive globally and the lack of demand domestically gives producers little incentive to increase production.

Cheese has also followed a similar trend, with prices sliding in H2 2022 and into 2023. This is due to limited consumer demand, with a similar picture for butter, where limited buying interest has driven Q4 prices down.

The downward trend in dairy commodity prices was also highlighted in the recent Food and Agriculture Organization of the United Nations Dairy Price Index, which slipped 2.7% in February, driven by lower prices across all dairy products, particularly butter and skim milk powder, as well as low import demand and higher domestic production during the winter.

High production and lower import demand are likely to remain key factors in a weaker global demand for dairy in the first half of 2023. But with farmgate milk prices being reduced month on month, there’s potential to see lower milk production rates after the Spring flush, which could further influence pricing in the second half of the year.