The New Normal in Dairy – Milk is no longer a fixed constant

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Under current dairy market conditions, a shrinking global milk supply is meeting steadily increasing demand, and farm profitability is under increasing pressure with milk and feed prices at unprecedented levels. The economic challenges are accompanied by rising uncertainty about future political stability, environmental regulations and trade agreements. Is the dairy industry in a phase of fundamental change?

The dairy outlook looks bearish from a supply-side
It became clear during the event that the war in Ukraine causes a lot of uncertainty: there is a general shortage of food and difficulties in securing global food production. Participants even went so far as to speak of a struggle for milk in the future. At the same time, price elasticity may not be as important as it has been in the past. Consumers are willing to pay more for dairy products. But who will cover this supply in the future is unclear.
For 2022, IFCN expects milk prices to remain high in the face of current uncertainties – yet even at these high levels, the milk price still doesn’t compensate for the extreme increase in agricultural input costs, which is why farmers’ margins are under pressure.

What it takes to survive on the market
As volatility increases, it is critical to anticipate future developments, mitigate risk and understand the new rules governing dairy farming, processing, distribution and sales of dairy products. Erik Elgersma, IFCN consultant, says, “A decade can happen in a week” (paraphrasing “There are decades when nothing happens; and there are weeks when decades happen” – Vladimir Ilyich Lenin). Only those market players who are willing to act have a chance to succeed in the future. “Dairy processors must be a catalyst for change” and “dairy farming must evolve to meet environmental and consumer concerns” says Shelagh Hancock, the CEO of First Milk Ltd. The findings from the workshops, in which the participants looked at various future market scenarios, also reflected these results and, moreover, highlighted the importance of taking an in-depth look at the requirements of the changing dairy world.

Understand market economics to predict the future
“Milk will stay a relevant product in the future” says Richard Scheper from Rabobank. However, from an economic perspective, it will be crucial to monitor price transmission and supply conditions in real time to be able to react. IFCN’s General Manager Łukasz Wyrzykowski emphasizes: “You need to understand your market by using validated data, knowledge and the right tools – you need market intelligence to stay in business and not base your decisions on opinions.” And as always: timing is key!

The new IFCN Outlook offers up to 12-months forecasts for farm-gate milk prices, feed prices, farm margins and raw milk pool sizes for 65 countries, accounting for 92% of global milk production. IFCN and Eucolait will continue to monitor developments and are happy to take on the challenge of continuing to connect dairy stakeholders and thank everyone for their active participation. If you want to keep an eye on this development and are interested in dairy market forecasts or workshops, please feel free to contact us.

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