Milk price increases at all levels in January
Lakeland Dairies kicked off the January milk price auction with a one cent per liter increase.
The cooperative will pay 41 c per litre, bonus lactose and VAT included, for milk with 3.6% fat and 3.3% protein.
Lakeland management welcomed the general stability of global dairy markets and the balance of supply and demand, benefiting from the reopening of economies post Covid.
Glanbia followed on Tuesday with a 0.5c increase in its base price, taking January’s dairy milk price to 44.58c at 3.6% fat and 3.3% protein.
On the same day, skimmed milk and butter, two important products for the EU, led the way with a 4.2% gain in the world dairy trade price index.
The Kerry Group also announced a rise of 1.75c, taking its base price for January milk to 41c per litre, including VAT at 3.30% protein and 3.60% fat.
The group will also pay 44.97c per liter including VAT for standard EU constituents at 3.40% protein and 4.20% fat, compared to 43.06c per liter for December milk .
Based on Kerry’s average milk solids for January, the milk price return including VAT and premiums is expected to be 47.61 cents per litre.
Market watchers say falling global milk supply is the main driver behind rising milk prices.
According to Rabobank, one of the world’s leading food and agriculture lenders, dairy prices are at levels not seen since 2014, and firm prices across the dairy complex are will continue, after the combined slowdown in milk supply in the EU, the United States, and New Zealand (where annual production is expected to fall by 3% compared to last season) has led to a situation of extremely tight supply, which is forcing international buyers to rush to find available supply, amid shipping delays.
Low stocks in the main exporting regions are increasing pressure on the markets and putting buyers in a “delicate” supply position.
Reduced dairy farming profitability and weather-related issues have constrained farmers, and a rapid turnaround in supply trends is unlikely.
Europe’s peak spring supply will provide a test of dairy market strength, but the expectation of a slowdown in Chinese demand at some point in 2022 is a bigger threat.
Global logistical disruptions are also weighing on dairy trade, hampering efforts by importers to replenish stocks in anticipation of improving post-Covid demand.
The logistical disruption is also being felt locally, with an Irish Midlands haulage firm warning last week that there is a real risk that milk will not be collected from farms in 2022, due to a crisis of recruitment and retention of truck drivers. The company collects milk from farms and delivers animal feed and fertilizer to farms. He has started recruiting South African drivers, but says the process of obtaining work permits for them has slowed considerably.
“We need these workers immediately as we are now entering a major 2022 milk collection season with Glanbia,” a company spokesperson was quoted in the Dáil by Laois-Offaly Fianna Fáil TD Barry Cowen as saying.
Meanwhile, only modest increases in milk supply are expected in the EU (0.7%) and the US (0.8%) in 2022, mainly due to rising input costs for farmers. Globally, milk collections are expected to increase by just 0.6% in 2022. Milk flows are expected to fall by 1.2% in the 2021/22 season in the UK.
But the evolution of Chinese purchases which supports global demand, especially for milk powders, must be closely monitored.
China’s own milk production is picking up, following a wave of farm expansion. But farmers there face the same global increases in input costs.
Economic uncertainties in China could also affect their huge imports of dairy products.
New Zealand, the top dairy exporter, could be particularly vulnerable as its exports to China hit new highs in 2021.
But there are no signs of North Asian demand easing in the near term, with Chinese and neighboring buyers dominating in recent global dairy trade auctions and chasing higher prices.
China has been importing record amounts of powdered milk over the past two years, which declined somewhat towards the end of 2021. Eventually, Chinese importers may decide they have stockpiled enough. This could be countered by improving global consumer demand, if countries continue to ease pandemic restrictions. Already, higher prices for cheddar cheese indicate that the retail market is returning to the pre-pandemic era.
Yet Covid-19 remains a market disruptor, even as consumers also face food inflation and cost of living pressures as pandemic income supports are phased out.