Rabobank has released its latest Global Dairy Quarterly report, showing that Australia’s milk production continues to recover, as global supply is forecast to grow at a modest rate in the coming year.
In the Q3 report, titled Market Narratives are Shifting, the global agribusiness bank says positive – though modest – milk supply growth is expected from the world’s major dairy-exporting regions through the remainder of 2024 and in 2025.
Meanwhile, milk production in Australia in the 2023/24 season – which ended in June – was 3.1 per cent higher on the previous year at 8.4 billion litres (an increase of 249 million litres). However, the bank is expecting Australian production to grow at a lower rate in the 2024/25 season – currently forecast at 1.5 per cent.
RaboResearch senior dairy analyst, Michael Harvey, said Australian milk supply growth has been widespread, with production expanding in all states and regions, with the exception of western Victoria (where dry conditions have constrained production).
“Seasonal conditions remain mixed though across the key dairying regions,” said Harvey.
“There have been severe rainfall deficiencies so far in 2024 for western Victoria and South Australia, which are sizeable milk production regions. However seasonal conditions elsewhere have been mostly favourable.”
New South Wales had “led the charge”, recording impressive growth of 5.3 per cent in milk production for the 2023/24 season.
Global market balance
The report states that the global dairy market remains “balanced, but sensitive to change”, and the next year could see significant shifts as production increases and markets adjust.
"Milk production from the main global export regions had been elusive over recent years. Since the second half of 2021, combined milk production from the Big-7 dairy export regions – the EU, US, New Zealand, Australia, Brazil, Argentina and Uruguay – has only grown in three quarters,” said Harvey.
However, high dairy prices in the first half of 2024, plus lower feed costs, have improved farmer margins, encouraging production. RaboResearch expects milk supply from the major exporting regions to increase a modest 0.14 per cent in 2024 on the previous year.
“With producers seeing improved margins though, milk supply could make a distinct shift upward in 2025,” said Harvey.
“Our initial forecasts for 2025 suggest a 0.65 per cent year-on-year production lift from the Big 7, bringing global milk supply from these regions above the five-year average.”
Mixed demand
The report stated that demand for dairy remains mixed across regions, but both demand for and production of milk are expected to decline in China, the world’s largest dairy importer.
“At a retail level, price deflation continues to occur within supermarket aisles in South America, the United States and in most of the EU,” said Harvey.
“In response to weak consumer spending in food service channels, companies are spending more on promotions and advertising as consumers ‘pinch pennies’.
RaboResearch revised down its estimates for Chinese dairy consumption for 2024, showing China’s own domestic milk production is forecast to decline by 0.5 per cent year on year in 2025, as economic pressure on farms mount in the face of tumbling Chinese farmgate milk prices.
“As the market continues to recalibrate, we anticipate China’s net imports will be 12 per cent lower in 2024 compared with 2023 levels. Skim milk powder import volumes, in particular, could drop by up to 30 per cent.”
Australia
There have been no major changes to Australian farmgate milk prices since the new season announcements were made, the Rabobank report stated.
“Across the southern export regions, milk prices for those not under contract have fallen more than 10 per cent compared with the previous season,” said Harvey.
“In contrast, milk prices in regions producing drinking milk for the domestic market are mostly unchanged.”
The report said dairy farmers in affected regions are bracing for a margin squeeze as a result of the easing farmgate milk prices, with softer cull cow prices and a drop in heifer export volumes adding to the margin pressure for some.
In terms of dairy producers’ costs, there is a mixed outlook.
“Grain prices have drifted lower, which is welcome news for dairy farmers, and the outlook for prices for the current Australian winter crop is mostly favourable for purchasers. But in stark contrast, fodder (hay) prices have jumped, driven by supply concerns,” said Harvey.
Retail price inflation for dairy products in Australian supermarket aisles has also continued to decelerate, with the latest (June) quarterly Consumer Price Index showing yearly inflation for milk and cheese tracking at less than three per cent. Harvey said that this was the lowest rate of dairy product inflation since 2021.
Australian dairy exports finished the 2023/24 season on a high note, the report said, helped by increased milk availability and led by strong growth in cheese, skim milk powder and whey.
