Rabobank: 'Dairy and feed prices remain high

Dairy prices remain at high levels due to a global shortage of milk supply. Globally, China's import needs remain a major uncertain factor. The war in Ukraine is also having an impact. This is leading to higher costs throughout the dairy chain. These price increases have not yet been fully passed on to consumers. Rabobank expects many changes in the coming quarters.

Top of milk prices shifts upwards

The average milk price in the EU has increased by 6.5% since January. The milk price will increase further in the coming months. To what extent dairy processors can increase milk prices differs and depends on the product-market combination. 

Furthermore, it can be seen that in the first quarter the organic milk price rose by an average of 2.8%. In this period organic milk prices even decreased in France, Spain and Portugal. This demand-led market is significantly less sensitive to the development of world milk prices and is determined mainly by regional conditions of supply and demand.

Declining European dairy exports

Exports of the main European dairy products fell across the board in the first quarter of 2022. Analysts also expect a decline in exports in the second and third quarter. The main causes are a limited supply of milk, regional price differences and high logistics costs. Rabobank expects China's import requirements to drop by 37% in the second half of 2022, due to growing domestic supplies and continued production growth.

Dutch milk production down again

Milk production in the Netherlands fell by 2.3% in the first quarter of 2022 compared to the same period last year. The second quarter also started with negative growth. In April, 2.6% less milk was delivered compared to the same month a year earlier.

Limited increase in liquidity at dairy farms  

Rabobank analyses show that the increase in liquidity at dairy farms is not as fast as one might expect, given the current milk price. There are various reasons for this. Some entrepreneurs still had some catching up to do from the past few years, in which margins were low on average. Others have made investments because it is now possible and sometimes necessary to do so. In addition, costs have risen on many farms, so that margin growth was more limited. But with the current milk price, it does mean an improvement in the financial position. A development that is necessary to absorb possible (future) setbacks, such as rising interest rates.

Rabobank.nl