GLOBAL – Producers who will be keeping a keen eye on costs should be cautious not to make cost-cutting changes to feed rations at the expense of the quality of milk components that their cows produce, warns Rabobank.
The Dutch multinational banking and financial services company said farmers that grow most of their feed will fare better than those that rely more heavily on purchased feed.
Record-high feed costs and weather-related issues have been directly impacting margins for dairy farmers across the Big-7 diary-producing regions of the world, Rabobank noted.
For the first time since 2016, milk production in those regions contracted year-on-year for three consecutive quarters, the company added.
The record-high feed cost is partly associated with the war in Ukraine that continues to put pressure on grain and oilseed prices, as the vast exports of corn and sunflower seeds from Ukraine that are used in animal feeds are not entering the global market.
Also, Limited Russian and Belarussian exports of fertilizers and other grains are also contributing to higher feed costs, upping production costs.
Rabobank was concerned that the global herds have contracted or are facing barriers to growth, making it harder for milk output to rebound after the current slump.
The bank continued to state that If weakening commodity prices translate into lower farmgate prices in coming quarters, that could result in a less impressive recovery.
Meanwhile, inflationary pressures will also trigger lower demand in rich and poor countries, Rabobank reported.
The consumer’s purchasing power is being weakened by a global inflation wave not seen since the 1970s and is making it difficult for milk processors to pass increased production costs on to consumers.
Even though many consumers in the developed countries are usually more resilient to higher prices, this time around the impact on prices is severe and resulting in changing consumer behavior.
Some countries like the UK are already implementing measures to protect low-income families with one-off payments and energy bill discounts due to diminished purchasing power.
Furthermore, structural issues could limit a significant rebound in production from some key exporters, contrary to the past, where production recovered and surpassed previous peaks in the preceding years, Andrés Padilla, senior analyst at Rabobank said.
A case in point is China which has lowered its imports, due to strong domestic milk production coupled with weaker consumer demand related to COVID-19-related measures, and high inventories, reported the team.
Rabobank pointed out that overall liquid milk equivalent, excluding whey imports, are already 4% lower for the first four months of 2022 with some categories down sharply forecasted, and forecasted China’s non-whey import demand to decrease by 34% YOY in 2022.
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