Milk prices might soften, but they will likely settle at a new higher level than in the past, as limited milk supply constraints continue to underpin dairy markets, according to Rabobank.

Speaking at the Irish Farmers Journal nitrates meeting in Cork on Tuesday night, Rabobank dairy analyst Richard Scheper opened his outlook on the 2023 milk price by suggesting that milk prices won’t be moving back to 2019 levels anytime soon.

When pushed harder later in the evening, he predicted a 4-5c/l softening of prices in the first two to three months of 2023.

He said: “I don’t see the supply upside, because constraints such as labour availability, capital investment in sheds and uncertainty around environmental regulations are key factors in this global supply challenge, so the milk is just not coming.”

China

Referencing China’s influence on milk prices and particularly demand, Scheper said much depends on the COVID-19 lockdown policy in major Chinese cities, because unemployment is currently an issue in China.

He said: “The fact of the matter is that almost 50% of the spending power as measured in Gross Domestic Product (GDP) resides in the cities, so what happens there is important.”

Demand

Scheper also discussed the impact inflation is having on dairy demand and suggested that there were some early signs that dairy demand was back in some countries, particularly in Germany.

He added: “Downtrading from premium products is and will be an issue as we get further into winter.

“Currency and weakening of the euro versus the US dollar will leave EU product more competitive, but for some European companies dependent on local sales, that won’t have an upside.

“The US market is always good for 1% to 1.5% supply growth, so this also need to be considered,” he said.