Content supplied by Rabobank.
Rising farmgate milk prices and improving dairy margins will contribute to increased global milk supply in 2025, according to a new report by food and agribusiness banking specialist Rabobank.
In its Q4 Global Dairy Quarterly report, titled A Period of Prosperity, the agribusiness banking specialist says the second half of 2024 marks a turning point for milk supply growth across the Big 7 dairy export regions (Australia, New Zealand, Argentina, Uruguay, Brazil, the EU, and the US).
“Big 7 year-on-year production gains for the second half of 2024 are forecast at 0.5%, offsetting last year’s 0.5% decline across the same period,” RaboResearch senior agricultural analyst Emma Higgins said.
“Combined seasonal peaks in Oceania, the largest in over a decade, underpin gains in the second half of 2024.”
The report says farmgate milk prices are now trending higher in most regions around the world.
“Across the global feed complex, there are no significant issues for dairy producers with prices and availability mostly being favourable,” Ms Higgins said.
“This combination of rising milk prices and affordable feed mean dairy farm margins have improved. More money will likely mean more milk for 2025.
“We anticipate supply growth across the Big 7 will maintain momentum in 2025, with gains expected in all regions – the first time this has happened since 2020.
“While milk supply is growing for exporting engines, the volume growth is not expected to overwhelm the global markets, with RaboResearch forecasting milk supply growth of 0.8% next year.”
Ms Higgins said the upwards production and pricing trend across the Big 7 export regions was in direct contrast to that unfolding in the Chinese dairy market.
“Quarter three of 2024 ushered in a shift in direction in China’s milk supply journey, brought on by unbalanced farm economics,” she said.
“Chinese farmgate milk prices remain near 10-year lows, triggering herd reductions and farm exits, particularly among smaller operators. A heatwave in quarter three 2024 has also negatively impacted milk supply, with second half of 2024 output estimated to be down more than 5% year-on-year.
“Looking towards 2025, RaboResearch expect Chinese milk production will continue to fall, with a year-on year decrease of 1.5% forecast.”
On the demand side, the report says, global dairy demand dynamics remain mixed with consumer spending still under pressure across many economies, and the impact on dairy purchases continues to play out.
“Food service channels remain sluggish in most major markets. With consumers eating-in more, this is supporting the retail channel but there are continuing signs of trading down, with some negative volume impacts, particularly in the emerging markets,” Ms Higgins said.
“In some regions, deflation in dairy aisles, which has increased in the second half of 2024, is helping consumers’ budgets. Against this backdrop, dairy supply chains in major markets have been readying themselves for upcoming seasonal and holiday demand.”
“Chinese dairy demand also remains sluggish, however there is some optimism the bottom of the cycle has passed, and this is helping to move markets higher.”
The report says global dairy fundamentals remain mostly balanced moving into 2025.
“There is more milk and dairy products in the pipeline and dairy demand should also improve in 2025. China has made significant progress in rebalancing stocks,” Ms Higgins said.
“Based upon our assumption of normalised trade, we see current dairy commodity prices supporting improved farm margins, but without causing major margin compression for food and beverage manufactures – at least for the cost of dairy products.”
Ms Higgins said while a new record-setting milk price at or over $10.00/kgMS is entirely possible this season, there are still a number of risks to the New Zealand farmgate milk price for farmers to be wary of.
“A $10/kgMS milk price could be achieved if strong milk flows from New Zealand are consistently absorbed by markets, Chinese demand for New Zealand dairy products continues to improve, and other regions face production headwinds – particularly over the shoulder of the season,” she said.
“However, there are many uncertainties on the horizon for 2025 which also bring commodity price volatility risks.
“Having weighed up these factors, we’ve landed on a base case forecast New Zealand farmgate milk price of 9.70kg/MS for the 2024/25 season.
“We are cautiously optimistic for the remainder of the season, but the possibility of getting pricing whiplash is high, and history shows the risk for markets to overshoot is clear.”
Key watch factors
In addition to Chinese dairy supply and demand dynamics, the report identifies several other key watch factors for the coming months.
“One of these is the impact of the Republicans clean sweep in the recent US elections. Global markets are now focusing their attention on the forthcoming risk of rising US protectionism and the potential for this to create increased trade tensions,” Ms Higgins said.
“For dairy, a reemergence of tariffs could disrupt trade flows, while the threat of mass deportations could disrupt farm labour availability. Uncertainty will prevail in 2025 as the world awaits to see how many of President Trump’s campaign promises will be enacted.
We’ve also seen the US dollar strengthen since the election and anticipate a USD/EUR trading range between 1.05 to 1.03 over the next 12 months. The US dollar strength could have trade implications for dairy exporters and importers experiencing currency weakness.”
Ms Higgins said management of disease outbreaks was another key watch factor.
“Bird flu continues to spread across parts of the US and hit California – which accounts for 18% of US milk production – in early quarter four. California is also the US's largest producer of non-fat dry milk powder,” she said.
“Bluetongue is still impacting regions of Europe. Both outbreaks tend to impact farm-level production for up to two months and disrupt breeding programmes. There is optimism that vaccinations for both diseases could mitigate production impacts in 2025.
A further watch factor identified in the report is the impact of the recent EU tariff increase on Chinese electric vehicles and the potential for this to trigger Chinese counterreaction.
“China’s Ministry of Commerce has launched an investigation into EU dairy subsidies that could have far-reaching consequences for European exports,” Ms Higgins said.
“Currently, the targeted products include liquid cream and various cheeses, that represent a significant trade value of USD 572.5 million as of 2023. As a result, European dairy companies with trade exposure to China and the US are likely taking defensive actions.”
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