Global dairy market transitioning to next phase

Thursday, 07 December, 2023

Global dairy market transitioning to next phase

In its Global Dairy Quarterly Q4 2023 report, Rabobank has found that the global dairy market appears to be transitioning to the next phase in its cycle, with prices expected to move higher through 2024, following soft global dairy commodity pricing in 2023.

As 2023 draws to a close, the global dairy market is continuing to walk a tightrope of limited ‘new’ milk and sluggish demand. This year, weaker underlying fundamentals led to soft global dairy commodity pricing due to underwhelming milk supply growth, lower milk prices, elevated costs and weather disruption.

Rabobank’s global milk supply outlook for 2024 has weakened, with sluggish growth expected across most export regions.

According to the report’s lead author, Rabobank senior dairy analyst Michael Harvey, milk supply export has declined year-on-year in the third quarter by 0.2%.

Production from the ‘Big 7’ (the EU, US, New Zealand, Australia, Brazil, Argentina and Uruguay) exporting regions is forecast to decrease through Q1 2024 before turning positive. Over the entire year, milk supply is forecast to grow by 0.3%.

A slow recovery in prices

In local currencies, farmgate milk prices across export regions will close out 2023 anywhere between 20 and 40% lower than the start of the year. However, with the 2024 feed cost outlook looking more favourable, some regional milk prices have recently increased, boosting farmgate margins.

Rabobank expects a slow recovery in dairy commodity prices back to long-term averages; however, there is the possibility of price volatility and a possible market whiplash.

Demand uncertainty ahead

According to Harvey, demand would be a key factor to watch in 2024, with high dairy inflation, broader cost-of-living issues and weak consumer confidence remaining on the horizon.

Peak food and dairy inflation has passed but there is still market uncertainty amid rising unemployment and other factors which will impact purchasing power.

In China, overall consumption growth is sluggish, despite falling consumer prices and continuing foodservice recovery.

“China’s import appetite for dairy commodities is still expected to drive any Oceania commodity price rally in 2024,” Harvey said.

Rabobank expects China’s import volume to flatline in 2024, a positive result given the previous two years of withdrawal from global markets. This is an opportunity for importers outside of China to build stocks in 2024.

“Other factors to watch in 2024 include a mildly softer grain and oilseed price outlook, El Niño and weather-related risks, mixed livestock markets in export regions and the impact of the Israel–Hamas war on global markets,” Harvey said.


Australia’s milk supply recovered modestly in the first quarter of the new season, reaching 2.036 billion litres in the July to September period, 0.5% year-on-year higher. In Western and Northern Victoria, growth has been elusive.

In dry conditions, El Niño’s impact is becoming evident, with below average rainfall natively impacting soil moisture. This is expected to continue into Q1 2024.

Rabobank notes, however, that dairy farmers are well equipped to combat these conditions, with access to good carryover feed, ample supplementary feed supply and irrigation water. Despite this, the current winter crop is expected to decline materially.

Cost inflation on farm has peaked, with milk production costs moving to the next phase of the cycle. Feed and fertiliser input costs are expected to track closer to long-term averages; however, interest rates are still increasing and inflation is evident across most overhead costs.

Farmgate milk prices have been set for the remainder of the season, remaining at or near record levels, buffering the sector from global markets.

With tight domestic milk supply and export price competitiveness, Australian dairy exports have continued plummeting, down more than 13% year-on-year with falls in the milk powder ingredients, bulk cheese and butter. Liquid milk export volumes, a growth sector in recent years, are off 30% year-on-year.

Australia’s butter imports are up 43% year-on-year, while cheese is up 21% year-on-year.

Australian households are continuing to adjust purchasing behaviours in response to an income squeeze. Dairy purchases are generally outperforming other discretionary food items, but all signs are pointing to volume declines across different channels. In 2024, economic conditions are expected to remain sluggish and unemployment levels are widely predicted to rise.

Rabobank expects Australia’s exportable surplus to gradually stabilise over the course of 2023/24.

“A further recovery in milk supply will be the catalyst. However, export competitiveness will remain an issue in the near term,” the report said.

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