Prepare For A Further Drop In Milk Prices

Producers should expect the consolidation of buying power in the domestic market to weigh on dairy prices.

- Conce Moraba

Milk production in South Africa increased 4% year-on-year (y/y) in 2017. The summer grains production region received good rain in the 2016/2017 season, leading to a surplus of soya bean and maize. A large supply of feed resulted in lower feed prices, resulting in positive milk:feed price ratios.

Lower feed prices also encouraged increased milk production from June 2017. This, combined with limited consumer demand (see Graph 1), led to lower prices from May 2018. Moreover, milk production during April 2018 was 6% higher than for the corresponding period in 2017.

However, the number of dairy farmers continues to decline at an average rate of 400 farmers a year. South Africa currently has only about 1 300 producers. Despite this, production has increased over the past few years (see Graph 2).

In the first half of 2018, the Eastern Cape delivered 23% of South Africa’s milk, which was 11% to 12% higher than the volume of milk delivered in 2017, and KwaZulu-Natal delivered 26% to 27% of the country’s milk, about 15% to 20% higher than the previous year.