The Mintec price of EU milk declined by 2% to EUR 460/MT in the three-weeks to 21 October, as milk production continues to weigh on prices.
Overall EU milk production is expected to increase by 1.4% year-on-year (y-o-y) in 2020. This is an upward revision from the EU Commission’s previous summer forecast of 0.7% y-o-y. This increase is driven by growth in milk yield (+1.6% y-o-y), aided by competitive feed prices and favourable pasture conditions earlier in the year.
Milk production growth is expected to slow towards the end of the year. This is a result of mixed weather conditions across the continent during the summer, which may impact hay and silage availability in the coming months. While the dairy herd is expected to continue to decline by -0.4% y-o-y, milk production is expected to remain relatively stable against Q4 2019. While the global milk supply has increased, export demand in particular from China, has grown in line with production, which has provided a degree of stability to EU dairy markets.
In 2021, assuming normal weather conditions, EU milk production could grow at a modest rate (+0.8% y-o-y), with further dairy herd reduction (-0.8% y-o-y) likely. The pace of production remains uncertain, but the high milk growth rates of 2020 would be hard to sustain in case of a slow demand recovery. It is expected that the COVID-19 outbreak will lead to a further growth of direct sales in response to reinforced consumer demand for local food and short supply chains. With the slowing of milk production, and uptick in export demand and sales, this is likely to support EU milk prices in the near-term.