Internal policies in China coupled with a broader resilience towards dairy products are expected to put a dampner on the current buoyant ex-farm milk values in 2023.

After record farmgate prices in many exporting regions this year, global milk supplies have grown – following five years in decline – led by leading dairy producing nations in the Northern Hemisphere.

However, with demand faltering, milk prices are predicted to follow the global commodity market trend, and head south, according to a new report from Rabobank.

“Weaker supply growth has kept dairy commodity prices relatively elevated, but fragile growth is on the horizon,” says Emma Higgins, senior agriculture analyst at Rabobank.

“With many economies experiencing broad-based food inflation, dairy demand is likely to get weaker in the short term before any remarkable improvement.”

She added: “Any potential upside really hinges on a supply shock in the Northern Hemisphere or a meaningful re-opening of China in the new post-Covid world.”

Adding to the pressure to maintain milk prices at their current record highs is the fact that worldwide supplies have been bolstered by production in Europe and the US.

Rabobank predicts milk supply will gain modest momentum in 2023 in most regions apart from Australia, which saw another period of weather-disrupted production in the fourth quarter of 2022.

“In 2023, milk production from the Big 7 export regions is anticipated to grow by 1% compared to 2022 ¬- enough to offset the 0.8% decrease in 2022 and remain on par with 2021’s production,” Ms Higgins said.

She added that clear price weakness in dairy markets for the final quarter of 2022 has already been seen between regions and products.

And, while the large, domestically-supported cheese and butter markets in the EU and the US remain buoyant, off highs were posted earlier this year.

Meanwhile, a 9% decline in Oceania GDT index prices over the last three months has permeated through the global milk powder markets.

Dairy demand is however complex and multifaceted. The resilience shown will be tested by waning confidence levels as disposable incomes take a hit.

According to the report, emerging markets are most at risk due to projected inflationary impacts on consumer budgets in the first half of 2023.

“Consumption growth in some export regions is becoming more challenging as consumers juggle significant price increases in the dairy cabinet,” Ms Higgins added. “Dairy demand in the US has remained defiant in the face of cost-of-living challenges, while European consumers are now feeling the pinch at the retail level.

Some resilience in Southeast Asia is evident, but smaller sales volumes and downstream margin pressure illustrate the headwinds.”

At the same time, eyes remain fixed on China, as Covid-19 policies remain firmly in place and the country works through local inventories and imported stock.

“We expect buying patterns will remain subdued across the first half of 2023, due to rolling lockdowns, milk production growth, and wavering consumption as challenging economic conditions take hold.

“China is likely to re-enter markets in Q2 with a bigger presence from Q3 2023 onward.”

Meanwhile, the latest Global Dairy Trade (GDT) event concluded with a GDT price up 0.6%. The average price was $3,610/MT with 29,570MT of product sold.

Skim Milk Powder (SMP) saw an increase of 1.7% for an average of $3,102/MT, while Butter Milk Powder (BMP) saw the biggest increase of 4.7% for an average of $2,979/MT.

Anhydrous Milk Fat (AMF) saw a 1.8% increase with an average of $5,797/MT while cheddar also saw a similiar increase of 1.8% giving an average of $4,826/MT.

Whole milk Powder (WMP) saw the smallest decrease in today’s event, with an increase of 0.1%, averaging $3,400/MT. Sweet Whey Powder was not offered again.