High costs and weak demand still weighing on dairy producers

Dairy farmers are struggling with increasing input costs, leading to a sharp decrease in milk production. Yet the chances of further producer price increases are slim, as demand remains weak, says Dr Koos Coetzee.

- Dr Koos Coetzee

Apart from marginal growth in July and August 2022, monthly milk purchases have shown a decreasing trend since the beginning of 2022. 

Recently released figures by Milk SA show that milk production in the first quarter of 2023 decreased by 3,1% year-on-year.

The milk purchase figures for January 2023 and February 2023 were adjusted downwards by 1,4% and 4,2% respectively from the estimates released in March 2023. Total milk purchases in 2022 were 1,6% less than in 2021 and 2,3% less than in 2021.

The main reason for the decrease in milk production is worsening profitability as farmers struggle to maintain production with sharp increases in production costs and late and slow increases in producer prices.

FEED PRICES

The price of feed has increased sharply since 2019. In April 2023, yellow maize sold at an average price of R3 833/t and soya beans at R7 875/t or R5 045/t for a 70% maize, 30% soya bean ratio.

Dairy producers need a milk-to-feed price ratio of at least 1,4:1 to break even. The Milk Producers' Organisation estimates the producer price at R7,15 for March 2023.