Factors like unpredictable weather, fewer cattle and high feed costs have contributed to inconsistent milk production growth across the globe the past few years. However, analysts at Rabobank are expecting supply from the seven major milk-producing regions of the world to increase modestly over the second half of 2024 due to recent improvements in milk prices and cheaper feed.
Rabobank’s Global Dairy Quarterly Q3 report provides a current snapshot of these major dairy regions of the world, as well as things to watch for as 2024 comes to an end.
Things to watch
- The geopolitical situation in the Middle East has not improved, potentially weakening the demand for powders and impacting shipping costs.
- La Nina weather patterns to return later this year.
- China’s milk production growth to pause in 2025.
- Butterfat prices are likely to remain supported in the short term.
- China’s anti-subsidy probe into some dairy imports from the U.S.
- Bluetongue, a viral, insect-borne disease, is spreading across Europe and could potentially impact milk yields there.
European Union
Milk deliveries improved by nearly 0.3% year over year from January-May, despite unfavorable weather in some regions and fewer cows.
Production among individual European Union (EU) member countries varied widely. Dutch milk was down by 1.9% through June, while Denmark and Germany’s year-over-year milk deficits were nearly erased in the second quarter. Ireland’s wet spring conditions took a toll on milk production with first-quarter output down by 8.7% and second-quarter output down by 4.2% compared to last year.
Milk production is up in Poland (4.1%), Italy (1.4%) and Spain (1.5%) through May. France, the second-largest EU milk-producing country, recorded its first year-over-year increase (0.4%) in several years, but production has been retreating in recent weeks.
To finish the year, third- and fourth-quarter milk volumes are expected to increase 1%-1.5%, for a 0.7% leap year-adjusted gain in 2024. A less than 0.5% growth in milk is expected for 2025 compared to 2024.
Compared to June 2023, EU farmgate milk prices have increased on average by 4%, with Denmark, Ireland and the Netherlands and seeing increases of 10% or more.
Cheese, fluid milk and fermented products increased in production, compared to butter, skim milk powder and whole milk powder, which posted declines.
Exports of cheese and whey increased, but lower export volumes are expected in the months ahead due to cleared stocks.
Domestic buyers are hesitant to keep large stocks, which means they’ll have to purchase from the market to cover their supply, thus supporting the price of milk.
U.S.
July milk production fell 0.4% to mark the 13th consecutive month of weaker year-over-year output. There is a chance milk production could move closer to flat in the coming months. Total milk production for 2024 is estimated to be down 0.4% compared to the previous year, with 2025 improving by 0.7% from 2024.
After another revision by the USDA to reported cow numbers, total animals are down 62,000 versus a year ago. Replacement cow values are at record highs, which is expected to keep cow numbers lower longer and limit any resurgence in milk output.
Milk per cow fell 0.3% year over year in June. With higher milk prices and less expensive feed, it is possible more farmers are holding on to older cows instead of culling them.
Highly pathogenic avian influenza (HPAI) continues to spread throughout U.S. dairy cattle, but there is no evidence of a significant market reaction with neither milk supply nor dairy product demand substantially impacted.
Milk prices are expected to be elevated for the second half of the year. Coupled with multiyear lows expected for feed costs, the margin outlook has sharply improved for dairy farmers.
Cheese exports are up 24% compared to last year thanks to low cheese prices. However, Rabobank’s analysts do not expect the pace to continue for the second half of the year.
U.S. domestic demand was up 1.1% year over year in the second quarter, following a weak first quarter.
Total demand (domestic plus export) might struggle against strong prior-year comparables in the coming months.
New Zealand
Weaker milk production and lower shipments to Algeria, China and other Asian destinations had export volumes for April-June down by 11%, when compared to the same time last year.
A wet, cold start to the milk production season on the North Island couldn’t be made up, and the season total came in just over 1% lower compared to 2022-23.
The weather has turned to favorable on the North Island, setting up for a better start to the new season. However, the South Island saw early winter conditions, forcing farmers to tap into feed reserves earlier than expected. The developing La Nina could bring wetter-than-usual conditions to the North Island and drier conditions in the south.
A lift in the farmgate milk price forecast from Fonterra for next season has farmer confidence improving. The forecast is believed to sit above national break-even milk production costs.
Australia
The Australian milk supply continues to recover. The 2023-24 season ended 3.1% higher than the previous season, and Rabobank forecasts milk production for 2024-25 to be 1.5% higher yet.
The increased milk availability has buoyed exports. Total Australian exports for the season were 1% higher by volume, led by strong growth in cheese, skim milk powder and whey.
Seasonal conditions are mixed. There is a severe rainfall deficiency in Western Victoria and South Australia, while elsewhere conditions have been mostly favorable.
With no major changes in farmgate milk prices, softer cull cow prices and a drop in heifer exports, dairy farmers in export regions are bracing for a margin squeeze.
Brazil
Rising prices and favorable feed costs have accelerated milk production in Brazil. Milk production increased more than 3.5% in the first quarter when compared to the same quarter last year.
Spot milk prices increased steadily for the first half of the year, but recently plateaued and may decrease if gains in seasonal production are realized.
Even with softer milk prices, high margins are expected to continue thanks to low feed costs. Margins are now at their highest level in 12 months.
Unemployment is the lowest it has been in 10 years, coupled with gains in wages, domestic demand is expected to be stronger for the second half of 2024.
Argentina
Severely impacted by drought and high temperatures in the second half of 2023 and early 2024, milk production contracted sharply. Ample rainfall brought relief and production has started to moderate. With continued adequate rainfall, 2025 milk output is expected to grow 2.3% above 2024 projects.
Margins remain firmly positive for farmers. Domestic consumption is expected to recover after dropping 18% in the first half of 2024 due to currency depreciation that impacted the purchasing power of consumers in Argentina.
Exports rose 7% for the first half of 2024 and are likely to remain above 2023 levels since the government extended the exemption of export permits for dairy products.
China
The National Bureau of Statistics of China said milk production for the first half of 2024 increased 3.4% compared to the first half of 2023. This is down 7.5% from the year-over-year growth in the first half of 2023. Rabobank expects production growth to slow, ending the year 2.7% higher than last year.
Average farmgate milk prices continue to decline and are down 14% from a potential extended oversupply situation. A decrease in feed costs from 14%-27% has protected dairy farms’ gross profit margins.
Large-scale dairy farms are reported proactively culling to reduce their herd size. The share of farms with fewer than 1,000 cows decreased from 76% in 2019 to 60% in 2023, indicating the pace of farm-level consolidation is increasing.
The shrinking herd size has Rabobank expecting China’s milk production to decline slightly by 0.5% in 2025.
Weak consumer demand and increased domestic production has net dairy imports projected to be 12% less for 2024 than in 2023.
