After expanding rapidly throughout most of 2020, European milk production growth slowed markedly in December in large part due to rising feed costs, but the lull in what have been persistent milk production gains be short lived, according to Monica Ganley, analyst with the Daily Dairy Report and principal of Quarterra, a consulting firm in Argentina.
“Modest December milk production growth in key European markets has temporarily assuaged concerns about an impending oversupply and is keeping upward pressure on dairy commodity prices,” says Ganley. “However, the relief could be short lived.”
With this spring’s seasonal peak in the Northern Hemisphere just months away, and producers in both Europe and elsewhere hoping to grow production this year, global milk output could still be very robust in 2021, she says.
While Ganley calculates that full-year 2020 milk production in the EU-27 and United Kingdom combined will be 1.2% larger than in 2019, after adjusting for leap year, December output in the same countries shows a gain of only 0.3% adjusted for leap year, using data from Eurostat, CLAL, and the United Kingdom.
“Year-over-year milk production losses posted by some of the region’s biggest players weighed heavily on the combined total,” Ganley notes. “And while December’s milk production growth was still squarely in positive territory, it was the slowest for the region since June 2019.”
Milk production in the European Union’s three largest milk-producing countries stumbled in December. Germany’s output dropped 1.1% below December 2019 levels, while production fell 1.4% in France and 0.4% in the Netherlands.
Higher feed costs that have tightened margins have been driving the slowdown, but European producers have not responded uniformly to higher costs, she notes. For example, countries like Poland and the United Kingdom posted significant volume increases, up 1.2% and 2.3%, respectively, in December.
Output in Ireland also climbed, up 4.6% in December, according to Eurostat data, and for all of 2020, production grew 3.5%. With grain and oilseed prices at their highest levels in years, Irish dairy producers are hoping that their reliance on pasture rather than grain will continue to provide them with a competitive advantage if feed prices remain high or continue to climb.
While feed costs will be key driver of profitability in most European countries as well as in the United States this yar, how quickly food service demand recovers will also play a major role in how far milk prices drop and thus how tighten margins get, she adds.