EU short term outlook: Subdued global demand will weigh on dairy exports growth

Key points

• Milk deliveries forecast to increase 0.4% year-on-year in 2024 due to increased yields
• Stabilising milk prices and lower input costs translates into better margins for farmers
• Ongoing geopolitical tensions in Russia, Ukraine and the Middle-east will influence prices and the flow of trade
• Export growth of dairy products likely to slow down amid weak demand

Raw Milk

In the latest EU short term outlook, the European Commission expects milk deliveries in the region to increase 0.4% year-on-year due to higher yields and stabilising milk prices. This echoes the EU Autumn outlook which had forecast deliveries to increase by 0.3% year-on-year. EU raw milk prices plunged in the first half of 2023 but began to recover from Q3 2023. Average raw milk prices by September had gone 25% below the peak of December 2022.

2024 began with a positive note and raw milk prices increased and stabilised at a 15% higher than the 5-year average. In most countries in the EU, overall weather conditions look favourable at the moment or feed production and grazing. Coupled with this, overall stability in input and output prices in 2024 are likely to improve margins for dairy farmers. However, there are exceptions to this, and Iris production in particular has been particularly challenged.

The size of the dairy herd is likely to continue to decline by another 0.5% in 2024 in continuation of the longer-term trend. This is likely to be offset by the increasing trends in milk yields (+0.9%), thereby leading to an overall increase in milk supply.

Dairy Products

The availability of milk solids increased by 0.7% for milk fat and 0.6% for milk protein in 2023. This benefitted the production of dairy products. Cheese and whey production are expected to be up 0.7% and 0.9% respectively in 2024. Production of SMP is likely to remain stable in 2024.

In 2023, the year ended with tightened stocks in Q4 amid improved exports and lower production. They are now believed to be at sufficient levels to cover projected export and domestic demand considering the expected production this year.

Looking at the export scenario in 2024, growth of exports is likely to slow down across the board. According to the EU commission, exports of butter, cheese and SMP are likely to increase by between 1 and 2.5% in 2024 although exports of WMP are expected to decline by 1.0%. Exports of fresh dairy products are likely to continue the declining trend in 2024.  WMP exports are facing competition with New Zealand and demand from China remains subdued. Ongoing structural changes in the EU dairy sector, forthcoming elections on the continent and global geopolitical tension will remain key challenges for the dairy sector.

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