In the latest Rabobank quarterly report, production is forecast to decline by 0.7% year-on-year for the first half of 2022 following a worse than anticipated end to 2021. The main drivers are rising cost of inputs, lack of labour, unfavourable weather, and variable feed quality. It goes without saying that that the current geopolitical environment has escalated already high costs as Russia and Ukraine are key players in both the energy and the cereals markets.

Exports are also expected to slow in 2022 as tight supplies reduce availability, while high prices may reduce appetite from importers. Lower demand from China is expected as their domestic production continues to grow, and stocks increase.

In the short term, dairy commodity prices should remain elevated as a result of inflationary pressures and tight supplies. The longer-term view is difficult to predict due to uncertainties around consumer behaviour given higher prices, and market conditions in light of the impact of the conflict in Ukraine. Despite this, there is little expectation that inflationary pressures with ease, or milk production grow, until later in 2022.