Global dairy commodity prices rise but face growing supply

Global dairy commodity prices have continued to climb in most key exporting countries in recent months. But ‘downside’ risks are expected to emerge in the second half of the year, agribusiness banking specialist bank Rabobank said in its newly released report.

In its Q2 Global Dairy Quarterly, titled ‘Too Good to Be True?’, the RaboResearch division said an only modest level of growth seen in global dairy production in the first few months of 2025 has underpinned firm dairy commodity prices.

“RaboResearch estimates that output from the Big 7 dairy -exporting regions (New Zealand, Australia, the EU, Argentina, Uruguay, Brazil and the US) expanded by just 0.5% year on year (YOY) in Q1 — a modest increase that aligns with the recent price strength,” said report co-author Michael Harvey, a RaboResearch senior dairy analyst.

“However, the outlook is shifting. Production growth is projected at 1.1% in Q2 and 1.4% in Q3, marking the strongest quarterly increase since Q1 2021. Both the US and EU are expected to contribute to this growth, with additional support from South America — granted, against weak prior-year comparisons.”

On the global dairy demand side, the report says, signs of stress are emerging, with “several concerning factors evident”.

“These include near record-low consumer confidence in the US, troubling indicators of economic struggles in China, and declining sales data from restaurants and consumer packaged goods companies across many regions,” Harvey said.

Amid these dynamics, the report says, global trade conflicts remain elevated, due to volatility and rapidly changing tariffs — factors that are influencing global dairy trade flows. Nevertheless, dairy commodity prices, particularly in Oceania, have surged to multi-year highs, it says.

“Recent trends at the Global Dairy Trade auction have been predominantly positive,” Harvey said. “Even in the US, most dairy commodities have shown bullish trends into late May, supported by mixed-to-lower stock levels and strong exports throughout Q1 — prior to the implementation of retaliatory tariffs by key trading partners China and Canada.”

But as “we move towards the mid-point of 2025”, the report says, “the question remains: is it too good to be true?” when it comes to global dairy commodity prices.

“In RaboResearch’s view,” Harvey said, “the answer is likely yes.

“We anticipate downside risks emerging for global dairy commodity prices in the second half of the year, driven by expanding supply and demand uncertainty.

“However, rather than a sharp downturn, we expect a recalibration from recent multi-year highs — a natural correction following a period of strong performance.”

For Australia, as the 2024–25 dairy season draws to a close, several dairy companies operating in the southern export sector have announced increases in farmgate milk prices, the report notes.

“This is welcome news for milk suppliers,” Harvey said. Benchmark average prices have reached approximately $8.40/kgMS.

“The higher farmgate prices come on the back of firmer ingredient and export returns,” he said.

Formal minimum prices for the 2025–26 season across southern Australia are around $9/kgMS — broadly in line with RaboResearch forecasts, Harvey said.

The report says Australian milk production is under pressure in several key regions, due to challenging seasonal conditions.

“National milk output for the 2024–25 season is slightly down, with production from July 2024 to April 2025 totalling 7.129 billion litres, a 0.1% decline year on year,” Harvey said.

“Dry conditions have seen significant volume declines in western Victoria, South Australia and Tasmania, with combined production in those regions falling 4% in the 2024–25 season to April 2025, equating to 70 million litres. There has also been severe flooding in northern New South Wales, impacting a relatively small number of dairy farms.”

RaboResearch expects 2025–26 Australian milk production to be marginally down on the previous season (by -0.4%), with downside risk if seasonal conditions remain predominantly dry. Harvey said feed costs were another growing concern for dairy farmers, with fodder prices surging across southern Australia, driven by strong demand and depleted reserves.

On the trade front, the report says, Australian dairy exports from July 2024 to March 2025 were up 5.4% compared with that period the previous season.

“Export volumes of milk powder, butter and cheese have rebounded strongly,” Harvey said.

Domestically, the Australian market continues to face headwinds, the report says.

“While interest rate cuts are expected to ease household budget pressures and mild deflation is evident in the dairy aisle, the foodservice sector remains sluggish. And soft consumer sentiment is also contributing to a trend of trading down,” Harvey said.

Image caption: RaboResearch senior dairy analyst Michael Harvey.