GLOBAL DAIRY DYNAMICS – January 5th 2022

Global Dairy Markets balance sheet

Global Supply

AU: Australian dairy production has not met expectations for the season. There is increasing concern that current factors will impact longer-term results in the coming seasons. Farm labour shortages remain a current limiting factor frequently cited.

CA: The Canadian Dairy Commission recommended a raw milk price hike of 8.4 per cent. The increase, which works out to about six cents more per litre, takes effect in February. Farm gate milk price will impact the customer prices.

EU: Milk production in Western Europe has been limping for most of 2021, and some market commentators believe that German milk production will fall for the first time since 2017. The region also witnesses a decline in cow numbers, specifically on the small herd size farms.

NZ: New Zealand dairy observers characterize milk production reporting through October, the fifth month of the production season, as disappointing. While hopes are for recovery, the typical trend of lower production month after month through the rest of the season will require a decent rebound to overcome the deficit so far. Early trends for November are not encouraging.
Fonterra has announced a strong start to FY22, lifting the forecast Farmgate Milk Price range to NZD 8.40 – $9.00 per kgMS. This means a contribution of more than $13.2bil to the NZ economy.

UK: NFU Scotland has highlighted the ‘soaring costs’ on-farm, and the tightening supply situation, and argued that the farmgate price needs to be closer to 40 pence per litre than 30ppl.
The union has also said that the next year will see continued pressure on Defra, in tandem with the other UK farming unions, to make the statutory Milk Purchasing Code and new dairy contracts a reality.

US: USDA’s current price projections for 2022 surpass the $20-mark (at $20.25 per hundredweight) for all milk, with Class IV and Class III average price estimates close behind at $18.70 and $17.75, respectively. If realized, the price increases for the three milk classifications would range between 80 cents and $2.70 per hundredweight above USDA’s November 2021 estimates.

Global Demand

CA: One of the biggest dairy companies in Canada will increase prices by up to 15 per cent in the new year as it deals with ballooning manufacturing costs, including a coming spike in the cost of milk. Lactalis Canada Inc. — part of the French multinational dairy processing giant that owns the Beatrice, Astro yoghurt and Black Diamond brand names, among others — informed retailers earlier this month that the price increases are necessary because labour, ingredients, packaging and transportation costs have all risen.

EU: The average EU raw milk value, as estimated by the German-based IFE institute, is up 1.1c from last week to an all-time record 50.2c/kg at the farmgate level, based on official butter and SMP prices in Germany, France and the Netherlands—butter average now €5,710/t and SMP €3,275

US: Total U.S. dairy exports (milk solids equivalent or MSE) fell 1% in October. It was the first monthly decline in MSE since January. Overall, year-over-year U.S. performance suffered from a combination of the unusually high volume of exports in October of 2020 and the ongoing port crisis

UK: Exports of UK food and drink are down £2.7bn (-15.9%) in the first three quarters of 2021 compared to pre-pandemic levels according to Food and Drink Federation (FDF). This substantial drop is largely due to a decline in sales to the European Union, accounting for a £2.4 billion (-23.7%) loss.
Exports to core markets including Germany (-44.5%), Italy (-43.3%) and Spain (-50.6%) have been particularly badly hit since 2019. Elsewhere, UK exports to Ireland – the food sector’s biggest overseas market – are down more than a quarter since 2019, a loss of nearly £0.75bn in sales. Major products, including beef (-18.4%), cheese (-13.2%) and pork (-5.7%) have continued to decline, with the exception of soft drinks which grew 11% from 2020.
Whereas the UK saw positive news in non-EU markets, with exports up 11%, driven by a return to strong growth in China (+22.1%), Taiwan (+21.8%), the UAE (+18.3%), Japan (+10.6%) and Singapore (+5.4%).

Heard in the Market

Geopolitics, Policies, Macro

UK: UK-Australia deal will have a ‘detrimental impact’ on the sheep sector. The National Sheep Association (NSA) in the UK is pressing for urgent scrutiny of the trade agreement by parliament and the Trade and Agriculture Commission (TAC).

AU: The Australian Dairy Farmers has launched a comprehensive set of national policy statements on the dairy industry intended to influence the 2022 federal election.
ADF wants to see improved labelling and marketing of plant-based alternatives to dairy products that are more truthful and do not mislead the consumer into thinking they are healthier than dairy.
The policy statement asks for the introduction of a voluntary code that restricts the use of the word ‘dairy’ and, if that is not successful, asks the Federal Government to enforce closer compliance with an international standard on the use of dairy terms.
ADF is concerned some plant-based products are trading off the good name of dairy but without matching nutritional value.
ADF will also be urging political parties to negotiate better international trade agreements to counter a decline in Australia’s share of trade.

US: U.S. Agriculture Secretary Tom Vilsack says more financial help is on the way for dairy farmers who have been hurt by years of low milk prices, the pandemic, and rising operating costs.
The National Milk Producers Federation has projected more than $1 billion will be paid out to farmers under the program for 2021. In Wisconsin, it’s expected to be more than $248 million, or around $51,000 per farm enrolled in the program.
Robert Chesler, CEO of the United Dairymen of Arizona, has emphasized the importance of securing new market access opportunities through bilateral or multilateral Free Trade Agreements. He says for American dairy farmers to remain competitive in the international market, the United States must unlock new export markets.

IN: Indian farmers will oppose the Comprehensive Economic Cooperation Agreement (CECA) between India and Australia if it throws open the country’s dairy sector for Australian dairy majors, the Bharatiya Kisan Union (BKU) has said. India and Australia have been in discussion since October for concluding a “full” CECA by the end of 2022, but both sides have fast-tracked the process to secure an interim agreement before that.

Merchant Market / Weather

IN: Market commentators are hailing Indian national government’s decision to allow the unrestricted import of refined palm oil and palm olein till 2022 end as a progressive step in consumers’ interest.
Dairy giant Amul has announced the setting of their largest state-of-the-art plant in Telangana with an investment of Rs 500 crore (67 Million USD) in two phases. The plant will come up in a special food processing zone with an investment of about Rs 300 crore (41 Million USD) in the first phase and Rs 200 crore (26 Million USD) in the second phase. It will provide direct employment to more than 500 persons and opportunities to several ancillary industries. This will be Amul’s largest plant in south India with the capacity to process 5 lakh litres per day of milk – expandable to 10 lakh litres per day – to manufacture packed milk and value-added dairy products such as curd, buttermilk, lassi, yoghurt, paneer, sweets etc.

CA: Canada’s Food Price Report 2022 forecasts an overall food price increase of 5% to 7% for the coming year, the highest predicted increase in food prices since the report’s inception 12 years ago.

DE: Market commentators expect cost increases and massive bottlenecks as two main worries of the German dairy industry, They do not expect it to be improved any time soon.

SA: Arla Foods has invested more than 64 million Saudi riyals ($17m) in the production lines that have been operational in the kingdom since September 2021. The new lines will be producing ready-to-drink products from Starbucks as well as Puck sauces, soups and cooking cream. Arla Foods’ production capacity in Saudi Arabia is projected to increase by 10% in 2022 compared to 2021, with additional production lines allowing the company to increase the product range further it exports to the region.

US: According to Gov. Tony Evers’ office, more than 20,000 Wisconsin farmers have received a total of $50 million through the state’s farm support program in 2021.

Consumer, Sustainability

AU: Woolworths is calling on Australia’s dairy farmers to share their plans for on-farm improvement, with grants of up to $100,000 available through the latest round of Woolworths’ Dairy Innovation Fund.

UK: Over the past decade, UK meat consumption has dropped off 17% as flexitarianism catches on, with consumers motivated to eat more plant-based foods due to health and environmental concerns.

UK: Over the past decade, UK meat consumption has dropped off 17% as flexitarianism catches on, with consumers motivated to eat more plant-based foods due to health and environmental concerns.

IN: Stellapps, a dairy tech start-up, has announced a 5-year partnership with Trouw Nutrition, the animal nutrition division of Nutreco, for distributing the latter’s feed products among its customer base.

IL: Israeli startup Future Meat just raised nearly $350 million. It is the largest single fundraiser for a cell-cultured meat company ever. That’s according to Egg Funder. The investment includes major U.S. agribusinesses like ADM and Tyson. Future Meat is gaining interest after saying it can produce cultivated chicken breast for $7.70 per pound, which is down from $18 a pound just six months ago. It plans to use the money to build a production facility in the U.S.

The Champion

Italian dairy has marked 2021 as a year of exceptional growth. This is the first time in history that Italian exports touched the mark of 500 thousand tons, reaching 3.5 billion euros racking + 11% in volume, compared to 2020.
According to the Italian Dairy Association’s analysis, Italian dairy exports grew in double-digits including France (+ 13%), Belgium (+ 18%), Poland (+ 22%), Romania, the Netherlands, Sweden and Spain. The US market is also growing stronger, where + 25% was recorded.
Among the specialties most exported abroad was mascarpone, which marked a + 38%, followed by provolone, pecorino (both + 20%) and mozzarella (+ 12%). Gorgonzola recorded increases of 30% in the US and Canada. Grana Padano and Parmigiano Reggiano will close the year with a + 6%, about 5 thousand tons exported, to which a complete estimate it is necessary to add + 10% of the product exported down grated.
Like its other counterparts, the Italian dairy sector is also being challenged by rising production costs. Added to this is a certain concern for the drop in domestic consumption: the purchase of UHT milk has returned to the levels of 2019 (-7%). Even the fresh one suffered losses (-3.5%), as did domestic purchases of cheeses (-0.9%). On the other hand, Italian milk production in 2021 increased to 13 million tons (+ 3% compared to 2020). Thanks to the self-sufficiency achieved by the sector, imports from abroad decreased (imports of bulk milk recorded a decrease 30%).