Milk prices to be squeezed as production rises

Global milk production is likely to continue to rise in the next few years, on lower feed prices and the end of milk quotas.

However, that could mean that dairy commodity prices will come under pressure, according to Nick Holt-Martyn at The Dairy Group.  

“The recovery in production around the world has meant that over the next six months all areas are likely to exceed previous production records,” he said. Rising milk prices and weakening feed costs had widened the ratio between a litre of milk and a kg of feed to its highest level for two years, which would encourage production at a time when consumption was also growing. “The outlook for 2014 is that milk production will be profitable for most.”

Following the end of milk quotas in 2015, EU milk production could increase by 3-5%, or 4-7bn litres, he added. New Zealand production could increase by 0-5% (0-1bn litres) a year, with US production likely to rise by 0-2.5% (0-2bn litres) annually.  “The likely effect on markets is obvious; current market returns are unlikely to be sustainable.”