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Milk market overview in Ukraine and the world

Yana Linetska
Association of Milk Producers

Rising prices for dairy products

The FAO dairy price index averaged 147.1 points in April, 1.3 points (0.9%) higher than in March, the eighth consecutive monthly increase, raising the index by 28 points. (23.5%) above its value a year ago.

In April, dairy prices continued to rise due to persistent restrictions on world supplies as milk production in Western Europe and Oceania continued to fall below seasonal levels.

International butter prices rose the most, reflecting supply constraints, including due to low product stocks, especially in Western Europe, amid growing demand for upcoming supplies, partly due to the current shortage of sunflower oil and margarine. Despite declining purchases abroad, stable domestic demand and low stocks in Europe have contributed to world prices for skimmed milk powder and cheese.

Decline in global milk production

World experts predict a decline in global milk production due to a significant increase in costs. Thus, the average price of corn in the world for the year increased by 20.8%, soybeans rose by 14.5% and oil - by 55.2%. The world dairy market is reacting painfully to the war in Ukraine. The supply of fodder has stopped, which has significantly shaken the balance of grain and oilseeds in the world.

For the dairy market, this was an additional pressure factor. The jump in oil prices also had a negative effect on the entire dairy chain. The increase of the already high cost of milk continues, and forecasts are disappointing.

Europe. As a result, even record milk purchase prices in major export regions do not encourage farmers to increase production. The average milk production in Europe has been declining for several months in a row. According to the latest data, in February 2022 the region produced 0.7% less milk than last year. Adverse weather conditions and environmental constraints add pressure to the already low profitability of milk production.

Oceania. According to the European Commission, the volume of milk produced in Australia since the beginning of the marketing season 2021/2022 decreased by 3.2% - to 6.7 million tons. In particular, in March, 596.4 thousand tons of raw milk were produced. 5.1% less than last year.

Production in New Zealand is also declining. Since the beginning of the marketing year, the region has produced 19 million tons of milk, which is 4% less than in the same period last year. In general, the downward dynamics of production is typical for New Zealand since last year.

USA. There are also negative values ​​of production. In the first quarter of this year, the United States milked 25.5 million tons of milk, which is 1% lower than last year. Three months were with negative values. In particular, 8.9 million tons of milk (-0.5%) were produced in March.

Based on the above data, a special increase in world production should not be expected by the end of the year. According to the US Dairy Export Board (USDEC), the production dynamics of the seven largest exporters will be 0%. And only if the world situation changes from 2023, we should expect an increase in production of 1%.

Decreased demand and prices for milk

Despite the shortage of milk in the short term, the world market has faced a slump in demand for dairy products. This is largely due to declining Chinese import activity due to the deteriorating situation with COVID-19 and the slump in procurement in South-East Asia and North Africa.

Thus, according to the results of the last GDT trades on May 2, the average dairy price index fell the most since January 2022 - by 8.5%. Without exception, all traded dairy products became cheaper. Fats lost the most in price: butter fell by 12.5% ​​- 5.8 dollars / kg, anhydrous milk fat - by 12.1% (up to 6 dollars / kg). Cheddar cheese sold for $ 5.6 / kg (-8.6%). SPM cost an average of $ 4.1. (-6.5%), and the SNM - $ 3.9. (-6.5%).

Oceania. Following such events, New Zealand dairy cooperative Fonterra lowered its forecast for selling milk prices for 2021/22, pointing out that the global crisis has had a "short-term effect" on global demand for dairy products.

Fonterra reduced the projected annual sales price range for milk from $ 9.30-9.90 to $ 9.10-9.50 / kg dry matter. Thus, the average point of the range, which is guided by payments to farmers, decreased from 9.60 to 9.30 USD / kg of dry matter. This was reported by Infagro with reference to dairyreporter.com

Fonterra CEO Miles Harrell said the move reflects demand for dairy products, which has been affected by COVID-19-related restrictions in China, the economic crisis in Sri Lanka and the кussian-Ukrainian conflict.

“While the long-term outlook for dairy products remains positive and global supply and demand are expected to be more balanced over the rest of the year, we are currently seeing how these short-term effects affect Global Dairy Trade (GDT) pricing. For example, average prices for whole milk powder (SMP), a key factor in rising milk prices, have fallen by 18% over the past four auctions”, - he said.

Recognizing that the current price update "disappoints our farmers", Harrell stressed that the decline was due to "record high" milk prices: "At an average of $ 9.30 per kilogram of dry matter, this will still be the highest forecast holiday the price of milk in the history of the cooperative".

USA. In the United States, milk prices have also reached record highs. In March, the average price of a quintal of milk there was 51.8 euros, which is 61.7% of last year's price and 8% of February this year.

Europe. It also shows a significant jump in price - 44.5 euros per cent in April. This is a quarter higher than the price paid last year and 2.3% higher than in March.

The forecast price for March from the international analytical agency IFCN was 6.6% higher than in February - 62.2 dollars per cent (ECM). The average price of milk in 2022, depending on the region, will range from 59 to 71 dollars / c. Estimated price for New Zealand - $ 65. (+ 6.5%), EU - 71 dollars. (+ 14%), USA - 59 USD. (+ 7.3%) per 100 kg of milk.

What is happening in Ukraine

At present, it is not possible and expedient to estimate or compare milk prices and their trend in Ukraine. After all, the current situation on the domestic dairy market does not yet fit into the overall picture of the world. In more than two months of war, the dairy industry has barely begun to raise its head and try to work. And now, in fact, at every step there is a stumbling block or problem that needs to be solved.

Many dairy farms continue to be under occupation and under enemy fire.

Farms in the occupied territories (Kyiv, Chernihiv, Zhytomyr, Sumy) are trying to resume work. However, it should be understood that the problem lies not only in the sale of raw milk, but primarily - animal health. Milking interruptions at most production sites resulted in health problems, including mastitis and reproduction. This will resonate in the future.

According to unofficial data, as of April 1, the number of cattle in Ukraine decreased by 20.7% to 2.47 million, and in industrial farms - by 11.8% (to 893.3 thousand). Cows decreased by 20.8% to 1.3 million, and on industrial farms by 12.3% (to 371.9 thousand). However, any estimates to date are quite approximate and will be adjusted after the war. Milk production in the first quarter decreased by 13.5% to 1.5 million tons.

Against the background of declining milk supply in early May, the market also reacted to increased demand due to the return of refugees to Ukraine (more than 1 million Ukrainians returned home). In addition, the factories of the occupied regions resumed their work. At the same time, in the areas affected by the fighting, according to preliminary estimates, the supply of milk fell by an average of 50%.

In general, there is a significant difference in milk prices - average and in some regions - due to a number of circumstances, including the military situation.

Thus, the average price for extra grade milk at the beginning of May was at the level of UAH 10.40 / kg (excluding VAT), see Graph 3. At the same time, enterprises with stable supplies had a price in the range of UAH 10.90–11.00 / kg. Some farms that are very close to large processing plants and the cost of logistics is minimal, receive 11.1−11.2 UAH / kg.

The range of prices for premium milk was at the level of UAH 10.00–10.65 / kg, while the average was at the level of UAH 9.94. The first grade was bought on average in the range of UAH 8.5–10.00 / kg (excluding VAT). The average price was UAH 9.82 / kg.

At present, special attention needs to be paid to the export of dairy products. After all, their stocks in warehouses are accumulating, and if in March there were active government procurement programs, now this area of ​​implementation has become more sluggish. Processors are hoping that schemes to sell dairy products across Europe will work.

Today, when the roads to the main consumer markets are closed for us, the abolition of customs regulation and liberalization of trade with the EU for Ukrainian dairy products will be extremely appropriate. This will allow Ukrainian dairy farmers to sell more in foreign markets - both directly to Europe and in transit.

These routes take some time to complete. And ahead is the season of big milk, which could theoretically put pressure on the market. However, whether there will be a big milk season in Ukraine this year is a big question. After all, milking on farms will be strictly regulated - both by producers and by military circumstances. At the same time, according to dairy companies, at the end of April the demand from the food industry for powdered milk and butter began to increase.

Further development of events in the Ukrainian dairy market will depend, first of all, on events and success on the fronts, as well as on the possibility of organizing exports.

It should be understood that domestic demand will become more limited due to the end of Ukrainians' savings and the traditional decline in consumer demand for dairy products in the summer. At the same time, the cost of milk production continues to grow, as in most countries. Rising prices for fuels and lubricants, which account for the largest share in the cost of raw milk for the plant, as well as the second most important for the farmer, will significantly limit the efficiency of the dairy business.

Repost of an article from the magazine "Milk and Farm" № 2/2022 at the link http: //milkua.info/uk/post/oglad-rinku-moloka-v-ukraini-ta-sviti