Rising costs have been hitting milk producers hard

Reduced milk production in key regions as sector buckles under mounting costs

A significant contraction in milk production and collection is being seen in Australia, NZ, Europe, UK, South America and North America. In spite of higher farmgate prices as seen in the UK or Australia for instance, production hasn't picked up while the sector remains saddled with rising costs such as fertiliser, grains and energy. While the largest milk suppliers' output has been declining, global demand is believed to have been adversely affected by rigorous COVID-19 lockdowns in PRC - which have naturally affected milk consumption - against a background of strong domestic production and large residual milk powder stocks in the country, which have led to reduced imports. The effects of reduced global supply and weaker demand in PRC may help to explain the downwards direction of prices on the GDT auction.

The usual correlation seen between farmgate prices and production is missing this year

In normal times a strong rise in farmgate prices (the farmgate price is the price the dairy farmer receives) leads to similarly robust increases in milk production. But not this time. The reason is input costs have risen to such an extent that dairy farmers have not been able to meet the costs of rising milk production without incurring losses or barely breaking even. The USDA expects a seizable contraction in EU milk production this season, corresponding to a loss of 420k MT.

Keywords: milk, milk production, milk collection, dairy producer, dairy farmer, farmgate prices, fertilisers, grains, energy, milk powder, rising costs, input costs,  lockdowns, consumption,  Covid-19, dairy imports, supply, demand, GDT auction, USDA, EU, US, UK, PRC