War continues to impact dairy commodities market

Analysis from Maxum Foods has showed that dairy commodities continue to feel the effects of the war in Ukraine, high temperatures and the rising cost of living for consumers.

The prices of dairy commodities are expected to stay strong in the EU but for Australia the cost of milk powder and fat will go down due to the strict lockdowns in China reducing demand for dairy ingredients.

The war in Ukraine is keeping the cost of dairy inputs like corn, grain and fertiliser very high, which means that for the next six months there will be supply-side constraints. Energy prices remain high in some areas but low in others due to changing circumstances brought about by Russian requirements.

The analysis shows that weather is not likely to improve the milk supply, with Europe’s summer, on the back of a hot spring, expected to be warm and dry. Also, damage done to pastures from the poor finish to New Zealand’s season may subsequently weaken seasons in other regions.

There are constraints on the milk output from the European Union that will keep the prices for proteins and fats high, and the risk of a weaker level of demand brought about by buyers reacting to high prices shouldn’t reduce commodity strength. By this stage higher food and dairy prices are being felt by consumers but the analysis notes that it is more likely for butterfat to become harder to sell than cheese.

The market for dairy commodities is expected to change in the United States as well, with lower milk output driven by a slow recovery for the dairy herd and processor supply management. There are fears that the demand for cheese will go down as households adjust to higher prices brought about by inflation. Lower milk availability for class IV uses in some regions will maintain protein and fat prices.

With the lifting of COVID-19 restrictions in China, demand in the region is expected to increase only slowly. Consumer spending and confidence have been reduced so there will be a reduced hunger for dairy imports in the region.

Thanks to a reduction in the amount of product that can be exported, the analysis expects that demand will change according to consumer food inflation.

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