Global dairy farming scenario in recent years: an assessment of prices and production

Global milk production has shown marginal growth over the last three years. In regions traditionally important for milk production and exports such as the European Union, Eastern Europe, South America and Oceania, it was observed stagnation or even reduction in production.

International prices for dairy commodities, relatively higher in 2022, returned to levels considered historic at the end of 2023. Observe from the Figure 1 the evolution of an indicator of the global price of milk paid to producers. This indicator is calculated based on the evolution of international export prices of the five main dairy commodities in the Oceania market and considers standard milk with 3.3% protein and 4.0% fat.

Figure 1. IFCN indicator of milk prices paid to producers in the world.

Source: IFCN (2024); elaboration by the authors.

In 2022, the price indicator reached an average of US$0.53/kg, with increase of 18% compared to 2021, not being enough to drive a greater production reaction. On the contrary, there was a reduction in growth dynamics, when world milk production practically did not increase, with an increase of just 0.4%, according to Figure 2.

Figure 2. Annual growth in milk production in the world. Percentage over the same period of the previous year.

Source: IFCN (2024); elaboration by the authors.

However, higher dairy prices in 2022 contributed to slowing consumption. Furthermore, the consequences of the Covid pandemic and the emergence of regional conflicts brought an environment of extreme uncertainty and inflation, weakening global demand for dairy products. It is estimated that the global demand for dairy products in 2022 will have grown by just 0.8%, equivalent to population growth.

A cycle of falling international prices began in April 2022and lasted until October 2023 when they started to grow again, closing 2023 at US$0.40/kg of milk, on average.

In comparing the Figure 1 with the Figure 2, it is noted that producer prices were not driving forces capable of boosting production, due to remnants of the pandemic period that began in 2020. This seems evident when it is seen that even with lower producer price values ​​in 2023, when the effects of pandemic were practically gone, the production dynamics were greater than the previous one, when producers received higher values. Howevera, 2022 was marked by a widespread increase in production costs. The cost was impacted by 20% in concentrated feed, 51% in fertilizers and 107% in energy. However, in 2023 the price indicator for concentrated food was lower by 16%, improving profitability compared to 2022.

In recent years, the greatest difficulties in milk supply in the world have been in dairy exporting regions, such as the European Union, where production has not been growing. Even with this improvement in production costs, in 2023, the expectation is for stabilized or negative supply in the European Union, driven by falls in Italy, the Netherlands, Ireland and France, although partially offset by increases in Poland.

From a general perspective, in the European Union agricultural margins are still low, herds are decreasing and there are a series of difficulties, which have impacted productivity growth. Furthermore, regions with pressure to reduce herds, in addition to restrictive environmental legislation, have generated negative expectations for producers, who have expressed themselves and demonstrated dissatisfaction with this situation.

In the United States, cow slaughter increased by 0.9% in 2023, reflecting tight margins. Milk production was practically stagnant, but slowed down in the second half of the year.

The year 2024 looks a little more promising. For the month of January, the global producer price indicator was estimated at US$ 0.41/kg and, according to IFCN estimates, there is an indication of a level of around US$ 0.45/kg of milk. The latest indicators from the GDT auction have indicated an upward movement in prices, which tends to push up producer prices globally.

With regard to production costs, the IFCN indicator for concentrated food, for January 2024, predicted a drop of 5.7%, compared to December last year, remaining at US$ 0.26/kg which, in average, represents 24% less than 2023. Indications from the United States Department of Agriculture (USDA) have shown a scenario of recovery in global corn and soybean stocks, which has reflected in lower prices for these commodities. IFCN’s expectation is that the world milk production in 2024 is expected to grow by around 2.0% in relation to 2023, considering a scenario of better prices and lower costs.

In summary, although the global dairy sector has faced periods of turbulence, the outlook for 2024 is cautiously optimistic. Balancing supply and demand, along with effectively managing production costs and adapting to market changes, will be crucial to sustaining the sector’s long-term growth and resilience.