Supply growth remains subdued, but nervous sentiments impacts prices
It’s a bit of a broken record among dairy market analysts: milk output growth globally has remained very subdued – which should underpin better dairy prices – yet markets are sluggish with easier butter prices the main characteristic.
Global milk production is actually down, estimated at -0.4% for Jan to June, with weak supplies in the US, Australia and South America. The new 2019/2020 NZ season looks set for a strong start, with June supplies up around 13% in milk solids terms. However, June is the trough month, and in 2018 accounted for less than 1% of milk solids production for the full year.
EU production is only very modestly up (only +0.4% for Jan-June), but hides differing trends. Hence, France’s negative production trend remains negative, but less so, while German production, rising in the first quarter, has been falling every month since. Dutch milk output continues down (-2.7%) as last year’s herd reduction scheme continues to impact. Between them, these 3 countries account for around 45% of all EU milk production.
Other countries expanded production, not least Ireland, +10% for the Jan to June period, the UK (+3%) and while Poland had been growing its production fast up till now, it has just registered it first negative since late 2016 in June, down 0.5% compared to the same month last year.
The main problem comes from demand-side factors.
Weaker economic growth
Global economic growth has been easing for some months now, with particular reports from the Eurozone, the US and China. The IMF has for some time been flagging its concerns about a possible global recession, urging the US and China to resolve their trade skirmishes, and have now reduced their growth forecasts for 2019 and 2020.