Since the second half of 2021, milk production in major dairy producing countries in the world has declined. The prices of global bulk commodities such as grains, fertilizers and energy have generally risen, pushing up the cost of the global dairy industry. Superimposed on global inflationary pressures, the auction prices of global dairy products rose all the way in the first quarter of this year.

Different from the situation of major dairy producing countries in the world, the domestic milk supply continues to grow, which requires to maintain a rapid consumption growth rate to ensure a balance between supply and demand. Under the pressure of supply and demand, the domestic milk price lowered in March, showing the opposite trend to the world's milk prices.

01 Milk production in major dairy producing countries in the world has declined

Since the third quarter of 2021, milk production in the world's seven major exporting regions, including the United States, Australia, New Zealand and the European Union, has been significantly lower than market expectations.

As China's major milk trader, both New Zealand and Australia had a decline in milk production in the first quarter of this year. It is understood that New Zealand's milk production from January to February this year was 4.1 million tons, with a year-on-year decrease of 7%, and Australia's milk production from January to February this year was 1.33 million tons, with a year-on-year decrease of 6.2%.

The changes in New Zealand's policy also have a certain impact on China's milk supply. Based on the consideration of environmental protection and greenhouse gas emissions, New Zealand plans to reduce 700,000 dairy cows from 2020 to 2030, and the rapid growth trend of the number of dairy cows in New Zealand in the next few years will no longer be maintained.

The milk production in the EU and U.S. also declined. It is reported that the EU's milk production in 2021 had year-on-year decrease of 0.3%. In January this year, milk production in the EU was 11.67 million tons, with another year-on-year decrease of 0.5%. In the past, the long-term average raw milk production in the U.S. was relatively stable, maintaining an annual growth rate of 1%-1.5%, but it began to have a year-on-year decrease since the second half of last year.

02 Global milk prices reach record highs

Affected by multiple factors such as the decline in milk production, milk prices in the EU, New Zealand, the U.S. and other regions have recently reached record highs.

Driven by rising milk prices in major dairy producing countries, auction prices for a number of dairy varieties hit record highs in early 2022. On April 19, 2022, the auction price of whole milk powder in GDT reached US$4,207/ton (equivalent to fresh milk price of 3.34 Yuan/kg), which is at a high price in the past five years. The prices of skimmed milk powder, cheddar cheese and butter all saw large increases.

In addition to declining production, the factors such as global inflation and rising feed costs are also playing a role in the rise of milk prices in the world. It is understood that since the outbreak of the COVID-19 epidemic, many regions around the world have introduced quantitative easing policies, which have promoted rising prices and inflation. Inflation has brought a rise in the prices of global bulk commodities, superimposed on the impact of the conflict between Russia and Ukraine, and the prices of grains, fertilizers and energy in the world have all risen, which has a greater impact on the breeding industry and also affects the global dairy industry production.

It should also be noted that the rise in milk prices is lower than that in feed costs, and there may be room for continued rise in milk prices.

In addition, rising energy prices increase the cost of dairy processing, resulting in changes in the structure of dairy processing categories.

03 Domestic supply continues to grow, and consumption growth affects the sustainable development of the dairy industry

China is the world's largest importer of whole milk powder, with imports reaching 1.3 million tons in 2021.

In the past two years, the construction of milk source bases in various regions of China has been accelerated, promoting the continuous growth of milk supply. According to data released by the National Bureau of Statistics, China's milk production in the first quarter had a year-on-year increase of 8.3%.

Industry insiders said that China's dairy industry is a sunrise industry. Although there will be some repetitions and setbacks in the development process, the overall trend is upward.

Source: Dairy123

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