Explore the reasons behind the global dairy market’s slower price recovery amidst dwindling demand and surging production in China. What implications does this hold for global dairy prices? Find out more.
Rabobank’s Q2 Global Dairy Report, titled “Searching for Equilibrium,” provides a comprehensive analysis of the worldwide dairy market. It reveals that the market is experiencing a slower-than-expected price recovery. The primary factors contributing to this trend are lower worldwide demand and the increasing local milk output in China. The report further explains that the initial surge in global dairy prices in late 2023 and early 2024 was primarily due to importers restocking at lower prices, rather than increased consumer demand. This complex interplay of factors underscores the need for stakeholders to stay informed and aware of the market dynamics.
| Commodity | Price (US$ per tonne) | Change (%) | Recent Gains |
|---|---|---|---|
| Skim Milk Powder | $2,629 | 3.5% | Consistent |
| Anhydrous Milk Fat | $7,365 | 3.5% | Consistent |
| Butter | $6,931 | 5.1% | Strong |
| Whole Milk Powder | $3,408 | 2.9% | Steady |
| Cheddar | $4,239 | 0% | Stable |
Decoding the Supply Chain: How Strategic Restocking Inflated Dairy Prices
| Commodity | Date | Price (US$ per tonne) | Change (%) |
|---|---|---|---|
| Skim Milk Powder | 22 May 2024 | 2,629 | 3.5% |
| Anhydrous Milk Fat | 22 May 2024 | 7,365 | 3.5% |
| Butter | 22 May 2024 | 6,931 | 5.1% |
| Whole Milk Powder | 22 May 2024 | 3,408 | 2.9% |
| Cheddar | 22 May 2024 | 4,239 | 0% |
Knowing the mechanics underlying the first spike in world dairy prices in late 2023 and early 2024 shows one crucial tendency. Rabobank’s Q2 Global Dairy Report shows that importers’ intentional restocking at lower prices rather than consumer demand drove the jump. Globally, market prices momentarily surged as importers restocked their supplies at reasonable costs. This synthetic surge covered the underlying poor consumer demand, suggesting that the price rise did not reflect a steady increase in dairy consumption.
Navigating Market Turbulence: Global Dairy Faces Demand Challenges and Supply Surpluses in Q2 2024
| Region | Q1 2024 Demand (in million tons) | Q2 2024 Demand (in million tons) | Quarter-over-Quarter Change (%) |
|---|---|---|---|
| North America | 12.3 | 12.1 | -1.6% |
| Europe | 17.5 | 17.3 | -1.1% |
| Asia | 21.0 | 20.6 | -1.9% |
| Latin America | 9.5 | 9.3 | -2.1% |
| Africa | 6.7 | 6.6 | -1.5% |
| Oceania | 2.8 | 2.8 | 0% |
Q2 2024 presented interesting difficulties for the worldwide dairy industry. Along with rising milk output in China, a significant market participant, weak global demand resulted in lower dairy imports from China and downward pressure on world pricing. This scenario underlined the complicated dynamics of declining consumer confidence and increasing local production, therefore tempering prior predictions of a continuous price rebound. The market is now in a phase of cautiousness and adjustment.
China’s Growing Self-Sufficiency: A Stark Contrast in Global Dairy Production Forecasts
| Year | Milk Production (Million Metric Tons) | Growth Rate (%) |
|---|---|---|
| 2019 | 31.9 | 4.5 |
| 2020 | 33.0 | 3.4 |
| 2021 | 34.8 | 5.3 |
| 2022 | 36.5 | 4.9 |
| 2023 | 38.0 | 4.1 |
| 2024 (Forecast) | 39.2 | 3.2 |
China’s role in the global dairy market is becoming increasingly significant. The country’s milk output projection for 2024 has been raised, indicating a substantial increase in China’s output. This shift is altering the dynamics of dairy imports worldwide. In contrast, other major dairy-producing countries such as the U.S. and the E.U. are expecting only a slight rise in milk production. Senior dairy economist Michael Harvey points out that this disparity underscores the challenges global exporters face in adjusting to China’s rising self-sufficiency and the delayed recovery in other regions.
Consistent Gains Amidst Uncertainty: Analyzing the 3.3% Rise in Dairy Prices at the GDT Auction
| Commodity | Price (US$ per tonne) | % Change |
|---|---|---|
| Skim Milk Powder | 2,629 | 3.5% |
| Anhydrous Milk Fat | 7,365 | 3.5% |
| Butter | 6,931 | 5.1% |
| Whole Milk Powder | 3,408 | 2.9% |
| Cheddar | 4,239 | No Change |
The GDT auction on May 22 revealed a significant trend in world dairy markets. The latest 3.3% increase in dairy prices to US$3861 per tonne marked the tenth gain out of the last twelve auctions, indicating strong performance in many dairy industries. These consistent increases in prices suggest a robust demand, even in uncertain markets.
China’s Reentry Boosts Global Dairy Markets: Prices Soar 10% Above Long-Term Averages
Reversing their early May retreat, Chinese bidders returning to the most recent auction have lifted prices over 10% above long-term norms. Chief Economist of Westpac NZ Kelly Eckhold points out that this comeback might improve their milk price projection for the 2024–25 season to be NZ$8.40 (US$5.14). China’s increasing demand helps to justify a positive view of world dairy pricing despite continuous difficulties.
Diverse Commodity Movements: Skim Milk Powder and Anhydrous Milk Fat Lead Price Increments while Cheddar Stays Static
Prices for skim milk powder and anhydrous milk fat increased by 3.5% to US$2,629 and US$7,365 per tonne, respectively. Butter climbed 5.1% to US$6,931 per tonne. Rising by 2.9%, whole milk powder brought US$3,408 per tonne. At US$4,239 per tonne, Cheddar stayed the same.
U.S. Dairy’s Persistent Production Woes: Navigating the Multifaceted Decline Amidst Deflationary Pressures
| State | Change in Milk Production (YOY) |
|---|---|
| California | +0.2% |
| Wisconsin | +2.5% |
| South Dakota | +12.3% |
| New York | 0% |
| Idaho | -0.1% |
Reflecting a disturbing pattern, April represented the tenth straight month of decreased U.S. milk output. One crucial component is a more miniature dairy herd—74,000 fewer cows than last year—that results in 9.34 million total. Though each cow produces more, general output has fallen. Constant dairy deflation has further complicated the economic environment for farmers by inhibiting growth and investment. Regional differences are also apparent; California experienced more yields per cow but had fewer cows. These elements imply that stabilizing the U.S. dairy sector might still be difficult.
The U.S. Dairy Sector Battles Persistent Deflation: CPI Slips 1.3% in April Reflecting Ongoing Market Challenges
| Month | U.S. Dairy CPI Change |
|---|---|
| January | -0.5% |
| February | -0.7% |
| March | -1.0% |
| April | -1.3% |
April’s U.S. dairy CPI dropped 1.3% year-on-year, eight consecutive months of deflation. This steady drop emphasizes the difficulties still facing the market.
Regional Disparities in U.S. Milk Production: A Complex Landscape of Growth and Stagnation
The geographical differences in U.S. milk output provide a mixed picture. Wisconsin and South Dakota have shown outstanding performance, with respective year-on-year growth of 2.5% and 12.3%. On the other hand, California has experienced a 9,000 cow drop but still saw a modest 0.2% increase in productivity, marking its second month of gain. While Idaho had a small drop of 0.1%, New York’s output has stalled, exhibiting no year-on-year variation. These differences draw attention to the complex dynamics of the American dairy industry, where areas experiencing expansion also face difficulties.
European Dairy Landscape: Gearing Up for a Resilient Market Amidst Global Uncertainties
| Month | Price (€/100 kg) |
|---|---|
| January | 45.90 |
| February | 46.05 |
| March | 46.33 |
| April | 46.31 |
In April, the preliminary E.U. average farmgate milk price dropped 0.2% to €46.31 per 100 kg. Rabobank is still optimistic despite this downturn; led by sustained increases, more significant fat and protein composition, and more premiums, prices might reach €50 per 100 kg. Reflecting a solid market amid worldwide uncertainty, Rabobank predicts the 2024 E.U. farmgate basic milk prices to average about €47.5 per 100 kg.
The Bottom Line
Despite the challenges, the global dairy industry is demonstrating resilience. The industry is grappling with declining demand and rising milk output in China, which is hindering price recovery. Additional hurdles include subdued consumer confidence and cautious shopping after a restocking phase. However, Rabobank maintains a cautiously hopeful view. It anticipates that lower feed prices and consistent output in key areas by year-end will bolster the market. While recovery might be erratic and delayed, the long-term market dynamics indicate a steady improvement, instilling optimism in stakeholders.
Key Takeaways:
The global dairy market is experiencing a more gradual price recovery than initially expected, influenced by factors such as fluctuating global demand and China’s changing import needs. Rabobank’s latest report provides an in-depth analysis of the current landscape and future projections. Here are the key takeaways:
- Global dairy prices surged in late 2023 and early 2024 due to importers’ restocking rather than a robust consumer demand.
- Weaker global demand and increased domestic milk production in China have tempered expectations for a steady price increase through 2024.
- China has revised its milk production forecast upwards, contrasting with modest growth anticipated in other major dairy-producing regions for Q3 2024.
- Dairy prices at the Global Dairy Trade (GDT) auction rose by 3.3% to US$3861 per tonne on May 22, marking the 10th increase in the last 12 auctions.
- US April milk production fell by 0.4% year-on-year, and the consumer price index (CPI) for dairy and related products decreased by 1.3% year-on-year in April, continuing an eight-month deflation trend.
- European farmgate milk prices fell slightly to €46.31 per 100 kg in April, with Rabobank projecting stable to incremental gains throughout the year.
Summary:
The Rabobank Q2 Global Dairy Report suggests a slower-than-expected price recovery in the global dairy market due to lower worldwide demand and increasing local milk output in China. The initial surge in global dairy prices in late 2023 and early 2024 was primarily due to importers restocking at lower prices, rather than increased consumer demand. China’s growing self-sufficiency in the global dairy market is causing a significant shift in dairy import dynamics, with its milk output projection for 2024 raising significantly. Meanwhile, major dairy-producing countries like the U.S. and the E.U. are expecting only a slight rise in milk production. The GDT auction on May 22 revealed a 3.3% increase in dairy prices to US$3861 per tonne, with Chinese bidders lifting prices over 10% above long-term norms. The U.S. dairy sector faces persistent production woes, with April representing the tenth straight month of decreased milk output. The European dairy landscape is gearing up for a resilient market amid global uncertainties, with Rabobank predicting lower feed prices and consistent output in key areas by year-end.
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