Discover how modest global milk supply influences Rabobank’s forecast of an $8.40 kg/MS milk price for 2024-2025. Will this impact your dairy business? Learn more.
As you read the article, it’s important to note that a relatively modest global milk supply is at play in the economic forecasts. In light of this, Rabobank has made a prediction – for the milk price in the upcoming 2024-2025 season, they anticipate a price of $8.40 per kg/ MS. This hinges on the slight squeeze experienced in the global milk supply, a factor that, in turn, supports and bolsters this outlook.
When observing milk production on a global scale, particularly through the lens of the main export regions, it’s expected to only see a slight expansion in this year’s third quarter. However, don’t be fooled by the slow start – the momentum is predicted to build as we approach the end of the year, forging a promising path into the new milking season.
A Word from Rabobank’s Analyst
Considering the intriguing nuances of the global dairy industry, Emma Higgins, Rabobank’s esteemed senior agricultural analyst, offers her key insights. She sheds light on the complex interplay of profitability shifts and geo-specific issues that have contributed to the dwindling dairy herds in the United States and South America. Unpredictable weather phenomena, like the sparse rainfall in New Zealand and overwhelming rains in Europe, have also cast their effect, denting the milk output.
As Higgins explains, “With global milk supply growth staying relatively subdued, we can expect the dairy market recovery to persist, with an imminent uplift in milk prices for dairy producers in most world regions.” But, she carefully cautions us – the ride to recovery isn’t going to be smooth sailing.
Mixed Global Demand Recovery Signals
As the world moves towards economic recovery, indications are mixed due to fluctuating global demand. While consumers try to dust off the economic fallout, their purchasing power is continually being strained. We’re observing this even though unemployment rates hover near historical lows across many major markets.
However, the sentiment behind consumer behavior is not as encouraging as we would hope. There’s a dampened mood among consumers, leading to a level of caution that is over and above what was predicted. A notable factor contributing to this is the persistent inflation, edging past targets in a majority of countries.
Furthermore, high-interest rates add another layer of complexity. They compound financial stress by amplifying existing debts and squeezing consumer spending capacity. And all of this is happening in an environment where credit has been an essential toolkit in dealing with cumulative inflation over the past years.
China’s Milk Production in 2024
Adding to the complexity, China’s milk production is on an upward swing. Rabobank has recently revised the 2024 forecast for China’s milk output, increasing it from 2% to a more substantial 3.2%. This adjustment comes in response to a surprisingly strong output, which can mostly be credited to the ripple effect of dairy expansions over the period from 2019 to 2022.
What does this mean for the global dairy market? Simply put, recovery might take longer than originally thought. When milk production accelerates in key areas such as China, it inevitably slows the pace of worldwide dairy market price recovery.
Impact on New Zealand’s Dairy Forecasts
Rabobank’s forecast for the upcoming New Zealand dairy season feels the heat from these developments. The swell in Chinese milk production presents a notable challenge. Why? Because this rise in Chinese output introduces an unforeseen risk to the price of milk straight from the farm in New Zealand.
So, while the global milk market grapples with varying pressures and ripple effects from region to region, the unexpected surge in China’s milk production stands as a potential stumbling block to New Zealand’s farmgate milk price.
Budgetary Pressures and Challenges
While an $8.40kg/MS price may seem promising at face value, it’s not all smooth sailing. Importantly, you need to keep in mind that ongoing budgetary challenges might still persist. Even if the milk prices for the upcoming 24/25 season hover around this level, it shouldn’t distract from the fact that costs will continue to be a primary concern for the majority of Kiwi dairy farmers. Being aware and prepared for these realities can help you plan for the future.
Measures Under Review
Change can be challenging, yet necessary. That’s why, farmers in New Zealand are taking a hard look at their operations — measures such as fertiliser applications and adjustments to labour practices are now under serious examination. This level of scrutiny shows just how serious farmers are about maintaining fiscal control as they gear up for another season under the sun. It’s a move towards efficiency, but it also underscores the economic pressures at play.
The Cost of Funds and Rate Cuts
Beyond the immediate operational challenges, there’s also the ongoing issue of funding. The cost of funds remains a persistent hurdle for many dairy farmers. But there’s some hope on the horizon — Rabobank forecasts that the Reserve Bank of New Zealand will cut rates twice this year. This expected shift might provide some relief and create a more favourable environment for those managing farms and their financial obligations. However, keep in mind, these actions have broader implications, impacting everything from loan repayments to new investments.
External Factors: Nitrogen Limits and Avian Flu
Last, but not least, are factors beyond New Zealand’s borders. From nitrogen derogation limits in Europe to the looming threat of pathogenic avian flu, these global issues have a way of resonating more locally than we might expect. These elements could turn out to be significant influencers in the market, affecting everything from milk production to export potential. Staying informed about these risks can help you anticipate potential market shifts and adjust your strategies accordingly.
Let’s shed some light on two key external factors – nitrogen derogation limits in Europe and the spread of avian flu in the United States. The decision by Denmark to forego its renewal of the nitrogen derogation – a move mirroring earlier restrictions in places like the Netherlands and Ireland – can have far-reaching impacts. This decision will reduce the usage of organic nitrogen from animal manure, further pressuring farmers’ costs and potentially leading to a rebalance of herd sizes. This isn’t just a concern for Danish farmers – it’s a global dairy industry issue to watch, including the market back home.
Across the ocean, the avian flu is yet another hurdle. It’s currently sweeping across eight different US states with older cows showing symptoms, though younger cows may also be infected. While it hasn’t led to a noticeable drop in milk supply yet, it’s a concern worth keeping an eye on. Not only could this affect milk availability, but it could sway consumer demand as the situation unfolds. As dairy producers, watching these international developments can help you make more informed decisions and find ways to shore up your business against these external fluctuations.
The Bottom Line
While Rabobank’s forecast of an $8.40 kg/MS milk price for the 2024-2025 season provides a glimmer of hope for the global dairy market, several challenges persist. These include mixed global demand recovery signals, increased milk production in China, and budgetary pressures affecting New Zealand’s dairy forecasts. The industry also faces regulatory hurdles such as nitrogen limitations and the looming threat of avian flu. In addressing these challenges, it’s critical for producers to place a higher focus on sustainability, transparency, and animal welfare. Moreover, it’s paramount that industry stakeholders explore investment and partnership opportunities to improve and modernize farming practices, thereby ensuring a more stable and profitable future.
- Despite Rabobank’s positive milk price forecast for 2024-2025, the global dairy industry still grapples with mixed demand recovery and increased production in regions like China.
- There are certain budgetary strains directly impacting New Zealand’s dairy industry. Efforts to alleviate financial strain and protect profitability will be a key focus of this industry stakeholder’s approach in the coming months.
- Changes in legislation and unexpected threats like the avian flu pose additional hurdles to be tackled in the dairy market, highlighting the necessity for contingency planning.
- Sustainability, transparency, and animal welfare are priority areas that global dairy producers should be emphasising to build consumer trust and ensure long-term industry viability.
- Modernizing farming practices and exploring opportunities for further investment in or partnerships within the sector are strategies that will help secure a stable and profitable future in dairy production.
Considering the challenges the dairy industry is currently facing, as well as the potential growth that lies ahead, it’s crucial to stay up-to-date with the industry’s latest developments, trends, and insights. So why not consider signing up for our industry insights newsletter today? You’ll receive regular updates on market forecasts, expert analysis and the inside scoop on factors shaping the global dairy market. Click here to subscribe now and stay one step ahead in the ever-evolving world of dairy.
