As the global dairy market treads through various challenges, emerging signs of optimism point towards a potential price upturn. Despite the volatility and uncertainties that have lately characterized the industry, several converging factors create bright spots on the global dairy price horizon. According to a recent Rabobank analysis, while global dairy prices are on the incline, farmers worldwide are grappling with margin concerns.
Milk supply growth is sluggish, with year-on-year output decreases from major exporting countries during the second half of 2023. A return to production growth will take time, seeing decreased year-on-year productions for this year’s first two quarters until volumes become positive again in 2024’s second half. However, encouraging trends have been observed in China, with retail and food service sales spiking during the Lunar New Year celebrations.
Dairy commodity price increases are expected in the year. The New Zealand milk price projection for the 2023-2024 season has been slightly revised upward. A Global Dairy Trade Auction on March 19 saw a 2.8% decrease in dairy prices. Whole milk powder and skim milk powder prices dropped by 4.2% and 4.8% respectively. According to Westpac NZ, whole milk prices have declined by 8.6% from their February peak.
Meanwhile, Australian milk production is witnessing a surge, with significant increases in milk supply across all dairying areas, thanks to favorable seasonal conditions and high farm gate margins. Between July 2023 and January 2024, Australian milk output rose by 2.5% year-on-year, reaching 5.35 billion liters. Summer rainfall dramatically exceeded forecasts across most of Australia’s east coast, making it a boon for cattle farmers.
Australian dairy producers can anticipate a prosperous 2024, with milk prices staying high, new season pricing commencing on July 1 that supports margins, and an abundance of homegrown feed in storage as well as affordable bought feed. Rabobank predicts that the Australian milk supply will round out the 2023-2024 season at 2.6%, with growth continuing into the subsequent season projected at a range of 3-4% for 2024-2025.
Driving this optimism is a rising demand for dairy products, more so in emerging economies. With improving living standards and increasing disposable income in countries like China, India, and parts of Africa, there is a growing demand for dairy-based products. This rising demand is anticipated to significantly bolster global dairy prices as producers strive to meet the needs of these booming markets.
Additionally, shifts in consumer preferences towards healthier and diverse diets are playing a pivotal role in driving dairy product demand. The health-conscious consumer base is growing, and so is the consumption of yogurt, cheese, and milk alternatives like almond and soy milk – a trend expected to continue, further bolstering dairy product demand and supporting price hikes.
In addition to demand-side factors, supply-side dynamics also contribute to the positive outlook for global dairy prices. Dairy producers worldwide are slowly adapting and innovating despite challenges such as adverse weather and input cost pressures. Technological advancements in genetics, herd management, and feed formulations are enabling farmers to optimize their operations, leading to increased milk yields and helping to mitigate supply constraints and stabilize prices.
The dairy industry is witnessing a rising emphasis on sustainability and ethical practices from both consumers and producers. This shift towards more sustainable production methods, including pasture-based farming and a reduced environmental footprint greatly improves dairy operation resilience and enhances industry reputation and marketability. As consumers become increasingly discerning about their food’s origin and its environmental impact, sustainably produced dairy products are likely to command premium prices, supporting the upward trajectory of global dairy prices.
Despite these positive developments, challenges persist, including geopolitical uncertainties, trade disruptions, and regulatory changes. The ongoing Covid-19 pandemic continues to introduce volatility and unpredictability into the dairy market, as fluctuating demand patterns and supply chain disruptions impact prices and profitability.
Yet, the demand is expected to outstrip supply in the coming years, and with ongoing efforts addressing sustainability and efficiency in dairy production, the overall global dairy prices outlook seems promising. While uncertainties loom, the industry’s resilience and adaptability, coupled with evolving consumer trends and market dynamics, imply that the bright spots on the horizon could signal a period of sustained growth and prosperity for the global dairy sector.
