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Ongoing weak global supply prompts lift in Rabobank farmgate milk price forecast  

With global milk supply remaining weak and supporting Oceania dairy commodity prices, Rabobank has lifted its milk price forecast to $8.60 kg/MS for the 2024/25 New Zealand dairy season. 

In its Q3 Global Dairy Quarterly report, titled Market Narratives are Shifting, the agribusiness banking specialist says milk production from the main global export regions has remained elusive over recent years. Since the second half of 2021, combined milk production from the Big-7 dairy export regions - the EU, US, New Zealand, Australia, Brazil, Argentina, and Uruguay – has only shown growth in three quarters. 

“For the 2024 year, this trend is expected to continue with production growth from the Big-7 forecast at a very modest +0.14 per cent year-on-year,” report lead author, senior agricultural analyst Emma Higgins said. 

“This weak milk supply growth has helped support steady-to-higher dairy commodity prices in 2024, translating into better milk cheques for most dairy producers. In response to improved margins thanks to cheaper feed prices, farmer sentiment is on the up – or at least steady – in the majority of key production regions. 

Media Release - 2308 FINAL Emma Higgins

Rabobank senior agricultural analyst, Emma Higgins

“Our initial expectation for the full 2025 year is for production to shift upwards on the back of this positive momentum, with a lift of 0.65 per cent year-on-year from the Big-7 forecast. If delivered, this would see global export milk supply above the five-year average growth rate – a rate that should be manageable for dairy markets.”

On the demand side, the report says, market settings remain mixed. 

“At a retail level, deflation continues to occur within supermarket aisles in South America, the United States and in most of the EU. Nonetheless, gasps are still audible in the chiller aisles when comparing what the “new normal” prices look like with pre-Covid days,” Ms Higgins said. 

“China remains problematic. Chinese dairy demand continues to be soft and we’ve recently revised our consumption estimations lower for 2024. As the market continues to recalibrate, we anticipate China’s net imports to be 12 per cent lower in 2024 year-on-year, with skim milk powder import volumes likely to bear the brunt of the adjustment, dropping by up to 30 per cent compared to 2023 levels.”  

Despite China’s pull back, Ms Higgins said, global dairy trade through May was largely positive. 

“Global trade of cheese, whey-derived products, and whole milk powder rose in May, however there were sizeable falls in global skim milk powder (SMP) exports to the two largest markets, China and Mexico,” she said. 

“Fortunately, increased trade to Algeria and Southeast Asia cut the deficit in half, leaving SMP exports trailing the prior year by five per cent. Limited supply and lofty prices accounted for a small decline in butterfat exports.” 

With broad-based demand likely to support commodity prices for the remainder of the season, Ms Higgins said, the bank had revised its New Zealand milk price forecast for the current season up by 20 cents kg/MS. 

“We’ve now lifted our forecast to $8.60 kg/MS for the 2024/25 New Zealand dairy season,” she said. 

“And at this level, the forecast farmgate milk price is at or above where national breakeven milk production costs are likely to sit for the 2024/25 season.” 

Ms Higgins said global supply and demand are now broadly in balance and markets are likely to remain ‘steady as she goes’ in the near-term as exporting regions take time to lift production. 

“However, it won’t take much to tip the market – either way,” she said. 

“The ongoing rebalancing of the Chinese market and the result of the upcoming US election both have the potential to alter trade dynamics, and the global dairy market ride is unlikely to be one for the faint hearted.” 

New Zealand update 

The report says export volumes for the three months to June 2024 were lower by 11 per cent (102,000 tonnes) on the prior year, reflecting weaker milk production along with lower shipments to Algeria (35,000 tonnes) and China (52,000 tonnes) and other Asian destinations (Sri Lanka, Thailand, Vietnam and Korea all lower).  

“Milk production for 2023/24 ended with production down on the prior period by just over one per cent on a tonnage basis, with national collections unable to make up the loss from a wet, cold start to the season in the North Island,” she said. 

“But the script has now flipped, and the North appears to be off to a better start in the 24/25 season. Broadly favourable autumn conditions with a mild winter in the North Island have meant good cow condition and feed reserves, setting things up for the new season.”  

“The South Island, however, has had a rougher time, with winter ushering in steady rain in Southland over early winter. Canterbury has been dealing with the dry autumn quickly shifting gears to colder winter temps, requiring some farmers to already tap into feed reserves.” 

Ms Higgins said anecdotal reports of more compact calving spreads could be due to a higher six-week-in-calf-rate, as reported by Livestock Improvement Corporation. 

“This could mean a sharper peak in October (weather permitting) and possible positive volumes on a tonnage basis over the spring peak, this would be the first since 2020,” she said.   

Ms Higgins said Fonterra recently lifted its farmgate milk price forecast to $8.50/kgMS for the 2024/25 season. 

“Advance rate nuances mean cash flows have been tight over winter, while interest rates are also adding pressure,’ she said. 

“Helpfully, the RBNZ has delivered its first cut to the Official Cash Rate in this cycle. We forecast that an OCR of 4.25 per cent is likely by July next year.” 

Key watch factors 

In addition to the Chinese market and the US election, the report identifies geopolitics in the Middle-East and the Bluetongue disease outbreak in Europe as key watch factors for the coming months. 

“The Middle East situation has not improved and in fact seems to be worsening. The Middle East and North America (MENA) have been a sound secondary dairy market for powders historically, and more recently demand has increased. However, broader conflict could see dairy exports to MENA start to slow,” Ms Higgins said. 

“Furthermore, shipping costs, routes and container availability are continuing to be impacted due to heightened risk in the area. And these costs will have to be absorbed somewhere along the chain.” 

“The Bluetongue outbreak in Europe is another development that industry participants will be following closely. The disease spread presents a downside risk to Rabobank milk production forecasts due to the potential impact the further spread could have on milk yields in the EU.” 

The report also cites weather patterns in key production regions and the potential for further increases to already high butter fat prices as further factors to watch. 

RaboResearch Disclaimer: Please also refer to our disclaimer here for information about the scope and limitations of the RaboResearch material provided in this media release.