Dairy market outlook

  • Growth in world milk supplies is expected to be limited through 2019.
  • Domestic production is forecast to show limited growth in the current milk year (Apr-Mar).
  • Import demand from China should remain strong through 2019.
  • Commodity prices will therefore remain strong at a global level.
  • The domestic market may see reduced market returns due to higher stock availability.
  • Farmgate milk prices may come under some downward pressure from lower market return after the normal lag.

Production

In contrast to tightening milk supplies in the EU as a whole, GB milk production has been hitting 20-year highs every month so far in 2019.

In the first quarter of the year, production was 3.4% higher than last year. Yields were boosted by higher use of purchased feed, a mild start to the year and increased calvings.

What next?

    • We expect a 0.7% increase in milk production in the 2019/20 season, assuming normal weather conditions.
    • Although there are signals that prices will come under pressure later in the year, calving decisions will have been made by then, limiting the impact on this season’s production.

Trade

Global markets

  • Growth in milk supplies at a global level is expected to remain tight in 2019 as high input costs and low farmgate prices have squeezed margins in Australia, the EU and the US.
  • China’s import demand should remain strong through 2019. Any increase in demand for alternative protein sources due to higher pork prices could lead to a price incentive to redirect dairy cows to the beef market. The lower herd would lower domestic milk supplies and product production.
  • Overall, we expect commodity prices to remain strong at a global level.

GB markets

  • Domestic prices may show a slightly different pattern as high milk production weighs on the market and storage capacity for the additional production is limited. The need to sell excess milk onto oversupplied spot markets or hold product as stock may impact market returns.
  • Uncertainties around Brexit outcomes could also impact market returns if processors build stocks in EU markets in an attempt to reduce the risk of high export tariffs.
  • Any reduction to market returns could then add downward pressure to farmgate price, with the typical lag of around three months.
  • After high production early in the first part of the season, growth is forecast to slow in the second half of the milk year. The smaller dairy herd and an expected drop in fertility due to the hot weather last summer are the main causes for the slow down.

Dairy consumption trends

Dairy occasions continue to be in long-term decline, according to Kantar Worldpanel. The biggest driver of this is fewer younger people having hot drink occasions, particularly in having tea with milk. Most of this shift is unconscious.

More positively, the loss in occasions has been compensated by a growth in other occasion types (milky coffees such as lattes) and cereal with milk. While there are fewer of these occasions, they use up more milk and, therefore, we see volumes being static.  

What next?

  • Milk consumption should remain fairly static in the short term, with some potential for slight erosion. Growth in dairy alternatives alongside changing eating and drinking habits will be offset by household growth, easing milk volume pressures in the longer term.
  • The outlook for yogurt is continued growth in the short term, as consumers continue to focus on health. New variants, with functional benefits such as being high in protein, or offering digestive health benefits, will continue to do well.
  • Expect pressure on butter to continue, due to price. There is more opportunity, due to the growth in carried-out lunches, given economic pressures on consumers.
  • Cheese is bucking the overall dairy trend, enjoying growth in both value and volume terms, and enjoying particular popularity among Millennials. Cheddar still growing well but less quickly than some of the more specialist cheese.
  • Work to increase dairy’s relevance among young people should offer further opportunities – particularly when partnering dairy products with ‘host’ foods, such as porridge oats or coffee.


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Dairy: At A Glance poster

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UK dairy outlook: May 2019

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Gallery: Dairy at a glance

Click the thumbnails below for simple visual explanations as to how the dairy markets have performed, according to the latest data. Here we look at UK prices, producer numbers, consumption, production and trade figures.