Dairy prices to ease in first part of 2014?
Improving global milk production combined with stable import demand suggests that world dairy prices will ease in 2014, which may translate through to UK farmgate values.
As summarised in the previous issue of DMU (which can be found here), the outlook for 2013/14 global supplies is a steady increase, finishing slightly up on last year.
The main factors behind rising production are strong farmgate milk prices, easing feed prices and (in some cases) higher cow numbers. Demand from the key importers is unlikely to fall but is also not expected to keep pace with the increased supplies, as economic growth rates are forecast to slow in developing economies. The current levels of import demand from China and Russia, prompted by supply issues in those countries, are not expected to last beyond the point at which the Northern Hemisphere moves into its peak production period.
World dairy and UK milk prices – Source: FAO/Defra
Looking closer to home, while movements in UK milk prices generally follow global trends, the speed and degree to which farmgate prices will adjust to world markets will be determined by domestic market conditions. For example, on one side, the on-going competition for market share between the major multiples and discounters could continue to squeeze manufacturers’ margins, which may put downward pressure on prices. However, while competition amongst UK milk buyers for supplies will have eased with the recovery in production, buyers are still competing to recruit farmers to direct supply pools and this could continue to keep some upward pressure on UK farmgate prices.
In summary, while increasing milk production will mean global dairy prices are likely to start softening as we move into the first quarter of 2014, there are some demand factors at play in both global and domestic markets which could slow down the process.
