August Dairy Market Outlook Webinar with Nate Donnay
Key takeaways:
- Further divergence in northern and southern hemisphere dairy prices are widening a gap
- Donnay doesn’t expect a recession, but says macro trends point to softening economic activity
- Good weather in the US in August is seen lowering feed costs
During the August Dairy Market Outlook Webinar, Nate Donnay, Director of Dairy Market Insight at StoneX, recently shared his expert analysis on the current state of the global dairy markets. With over 50 slides and an entire hour of content, Donnay provided a comprehensive view of dairy industry dynamics. (Watch the full version here.) Explore some highlights below.
Dairy price dynamics
Donnay noted that dairy prices across major exporters in Oceania have been roughly flat recently. In the US and EU, year-over-year milk production growth has been weak, with supplies tightening in the northern hemisphere along seasonal norms.
He also observed that northern hemisphere prices are moving higher relative to those in the southern hemisphere, widening the gap and encouraging price-sensitive buyers to source from regions with more ample supplies.
Macroeconomic trends
Regarding macro trends, central banks have been raising interest rates to combat inflation, and there is widening concern for economic slowdowns. The unemployment rate is trending higher, and the personal savings rate is now below pre-pandemic levels.
Donnay believes that the economy isn’t on the edge of a recession, but not in great shape either, with lackluster demand growth and low consumer sentiment.
Dairy market fundamentals
Donnay notes that feed costs have trended lower than expected for the US and Europe, above pre-pandemic levels but well of the highs. The weather in the US has been good for crops in August, and Donnay believes there will be a good finish for the growing season.
He also notes that dairy farmers are making additional income on calved being sold into the beef industry, which covers any increases in expenses.
What’s holding us back?
Donnay believes that two factors are holding the industry back and dragging on milk production– the lack of replacement heifers and bird flu that is moving through the US which has impacted a small percentage of cows. He believes that bird flu is knocking somewhere between two-tenths and six-tenths of a percent off the recent milk production numbers.
Despite these dual headwinds, Donnay believes that milk production growth will accelerate late into this year and early next year. Milk prices are increasing, and we may hit a new record high for gross margin later this year in Europe which should boost milk production growth.
Europe and New Zealand
In Europe, headwinds have emerged from weather and the potential for blue tongue disease to affect milk production. As the weather starts to cool off, Donnay believes we will return to lower feed costs and good milk prices with record high margins and easier year-over-year comparisons. In the short term, he does not believe that European production will be as a good as June.
In New Zealand, the weather has been near normal, with expectations for the herd to continue to decline. Globally, when considering the US, EU, New Zealand, Australia and Argentina; milk production was well above last year’s levels for June. Donnay still expects to see good production growth year-over-year into September and onward.
China
China remains a significant factor, being a big drag on global demand. Margins for Chinese dairy farmers are continuing to drop even as feed costs have stabilized. It’s pushing gross margin calculations for Chinese dairy farmers down to record low levels, which should cause a slowdown in milk production.
But the Chinese government’s economic policies don’t align with the rest of the world, making global comparisons and analysis tricky. The quarterly production data from the Chinese government did show a slowdown in the second quarter. To watch the full version of the webinar, please click here.
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