Global milk prices have almost returned to their long-term average, signalling the end of the current world milk price cycle.
Worldwide prices have increased by 63% since the lows of May 2016 and the International Farm Comparison Network (IFCN) world milk price indicator predicts the global milk price average for May was US$35.8/100kg (29.3p/litre) at 4% fat and 3.3% protein.
Widespread low farmgate prices have driven production to its lowest level since 1998, according to IFCN.
“We are now entering a zig-zag phase where markets will stabilise and we will not see such dramatic price changes,” said Kite Consulting managing partner John Allen.
“If prices start to boom at about 35p/litre then we would likely see a bust within the next year,” he added.
Mr Allen said the real takeaway message from the most recent crisis is the amount of debt the global dairy industry now carries.
The average debt for UK dairy farmers equates to £2,500 a cow, equal to 36p/litre.
But the situation is bleaker in New Zealand, with debts averaging £4,300 a cow or 86p/litre and worse yet in Denmark and the Netherlands, averaging £6,000-£7,000 a cow.
“As interest rates currently stand this level of debt is sustainable, but there are only so many businesses that will be able to expand for the long term,” said Mr Allen.
He added, “Confidence in this sort of investment will shrink and be limited to just a few producers.”
Global milk production
China, Brazil, Argentina and Oceania have largely been responsible for lower milk volumes, while India, the US and the Netherland all ramped up production in 2016.
UK milk deliveries for the 2016-17 milk year ending in March were 5.5% down on the same period 12 months before, at a total of 14.01bn litres.
However, production began to pick back up by the end of the milk year in reaction to higher prices at the end of 2016 and was expected to achieve parity with the same month a year ago when April figures are released, according to AHDB Dairy.
China driving demand
Demand growth was still well below its average level, but China, Brazil, the Philippines and Mexico were all growing importers of milk, said IFCN.
The farm data analyst predicts global milk prices are unlikely to see drastic improvements in the short term – but should stabilise.
This stabilising will be helped by the balancing of international oil and feed prices, however the global trend of bigger dairy units and fewer producers seen since 2014 will continue.