Uncertain demand for dairy commodities is likely to keep a lid on the potential for milk price recovery this year.
Although Rabobank dairy analyst Richard Scheper maintained that the recent “correction in milk prices” was over, he maintained that the scope for farmgate price increases this autumn was limited.
His comments echoed those of Ornua’s Bernard Condon, who told dairy farmers in Moorepark last week that milk prices were unlikely to bounce back as hoped during the second half of 2023.
Dairy market sentiment was primarily being driven by buyer demand rather than by milk supplies, Scheper said.
“The supply side is not the issue, the real pressure is on the demand side,” he told the Irish Farmers Journal. There is uncertainty around the outlook for demand in the trade, both domestically within Europe and in the international trade,” he said.
The Rabobank analyst said many buyers were “hesitant” to take positions and commit to volume purchases because of the current uncertainty in dairy markets and stock build-ups in some instances.
“We know that buyers will still have to cover some of the demand in the second half of the year, but what that demand will look like is the big question,” he said.
“Buyers are unsure that demand will recover, even if retail prices fall a bit lower,” Scheper explained.
He pointed out that European output had passed peak and was likely to remain stable or decline marginally this year compared to 2022.
In terms of milk prices, he said markets “looked quite stable”, but were unlikely to significantly recover during the second half of the year.
Buyers are unsure that demand will recover, even if retail prices fall a bit lower
“The reality is that there is not that much room for upside movement of milk prices, or for downside movement either,” he said.
On the international front, Scheper said the absence of a recovery in demand for dairy commodities in China continued to fuel uncertainty.
“For the trade side, the big question is, will China come back into the market in the second half of the year?” the Rabobank analyst asked.