Discover why global dairy prices are recovering slower than expected. How will China’s reduced imports and other factors impact the market’s future outlook?
Rabobank’s recently released sector research suggests that the global dairy market may experience a slower price recovery than previously anticipated, particularly as China shows a reduced need for dairy imports.
Despite this, the overall market outlook remains positive, the global specialist agribusiness bank says in its Q2 Global Dairy Quarterly, titled “Searching for Equilibrium.”
The report states that the initial surge in global dairy prices seen in late 2023 and early 2024 was primarily due to a period of importers’ restocking at lower prices rather than a robust uptick in consumer demand. However, the recovery in global milk prices has encountered some headwinds in Q2 2024. Earlier expectations of gradual price increases throughout the year have been tempered by a combination of weaker global demand and increased domestic milk production in China, which has reduced imports. According to Rabobank, these factors suggest global dairy prices may encounter further obstacles on the path to recovery.
Report co-author RaboResearch senior dairy analyst Michael Harvey noted that while China has seen an upward revision in its milk production forecast 2024, other vital dairy-producing regions are also not faring.
“Milk production from the main global export regions will expand only modestly in Q3 before gaining some momentum towards the end of the year,” he said. “Low profitability over the past 12 months has led to a decrease in dairy herds in key regions like the US and South America, while weather-related issues have also affected milk output in recent weeks, with diminished rains in New Zealand and excess rains in Europe.”
Michael Harvey added that this subdued global milk supply growth should help underpin a continuation of the dairy market recovery and an improvement in milk prices for dairy producers in most regions worldwide. However, he cautioned that the recovery would not be smooth.
“Global demand recovery signals are mixed, and consumers’ purchasing power remains under pressure,” he said. “Although unemployment remains close to record-low levels in most large markets, consumer sentiment is gloomier than anticipated. Inflation remains above target in most countries, and high interest rates continue to pressure debts and consumer spending at a time when credit has played an important role after cumulative inflation in recent years.”
Mr. Harvey stated that another potential headwind for dairy prices is higher milk production in China, which would likely limit Chinese demand for dairy imports. The report revised its forecast for milk output in China for 2024, increasing it from 2% growth to 3.2%, attributed to the lagging effect from the latest round of dairy expansions during 2019-2022. Despite more robust sales earlier in the year during the Lunar New Year period, Chinese dairy consumption remains subdued due to a weak job market and low consumer confidence.
The bank anticipates that China’s net dairy imports will be 8% lower in 2024 than in 2023, marking a third consecutive decline in net import volumes. More robust local milk production and weaker consumer demand will likely diminish the domestic deficit to around 11 million metric tonnes of LME (liquid milk equivalent). Moreover, SMP (skim milk powder) import volumes are expected to decline by 20 to 30% compared with 2023 levels.
Regarding Australia, the report noted that milk production was higher across all regions and states for the “season to date,” standing at 5.95 billion liters from June 1, 2023, to February 29, 2024. Key dairying regions have seen a “mixed autumn break,” with western Victoria and southeast South Australia experiencing dry conditions. Nonetheless, milk production growth in Australia should carry momentum into the new season, with factors such as adequate feed availability and whole water storage ensuring the availability of irrigation water. Rabobank forecasts a 2.9% increase in milk production to 8.23 billion liters by the end of the 2023/24 season, with an additional 1% increase projected for the 2024/25 season.
Australian dairy export volumes, however, have remained weak, down 6% season-to-date as of the end of February. Local Australian milk pricing is set to be “somewhat positive” for the new season, with a well-performing domestic market and healthy competition among dairy companies continuing to be key drivers.
In conclusion, while the global dairy market faces several challenges that may slow its price recovery, the outlook remains cautiously optimistic. Factors like Chinese milk production growth, reduced import demand, and other issues like nitrogen derogation limits in Europe and pathogenic avian flu could influence global dairy markets in the coming months. As industry stakeholders navigate these complexities, continuous monitoring and strategic adjustments will be crucial for sustaining growth and stability within the sector.
The second quarter of 2024 reveals challenges in the global dairy market, with Rabobank forecasting a slower-than-expected price recovery largely due to China’s reduced need for imports and mixed demand signals worldwide. Despite these hurdles, the overall outlook remains cautiously optimistic.
- Weaker Global Demand: Global milk prices struggle to rise due to subdued consumer demand and increased domestic production in key markets, particularly China.
- Modest Production Growth: Global milk production is expected to grow slowly until the latter part of the year, influenced by low profitability and weather disruptions in major producing regions.
- China’s Influence: Higher domestic milk production in China and weaker consumer confidence are set to reduce the country’s dairy imports by 8% in 2024.
- Subdued Outlook for Exports: Australian dairy exports have remained weak, despite an anticipated increase in production for the upcoming season.
- External Factors: Nitrogen derogation limits in Europe and pathogenic avian flu in the US are additional elements that could impact global dairy markets.
