Rabobank predicts ‘better year’ for dairy farmers

Dairy farmers in most of the top global producing countries could see a return to profitability as higher farmgate milk prices, lower input costs and increased dairy commodity prices are predicted to materialize over the course of 2024 and early 2025, according to Rabobank.

Milk supply in the Big 7 – comprising the EU, the US, China, Brazil, Argentina, New Zealand and Australia – is tipped to turn positive in the second half of 2024, though the bank warns that production expansion ‘will take time’.

Even in South America, where Brazilians dairy farmers have grappled with unseasonably dry and warm weather and the tightest production margins in years, and Argentina’s sector has struggled to reverse the milk production declines, there are signs of positivity.

In Brazil, Rabobank predicts improved margins as the year progresses, a growing consumer demand for dairy and favorable costs of production with lower feed costs. Production is set to rise 0.5% above 2023 levels according to the bank’s predictions.

In Argentina, farmgate milk prices are starting to catch up with inflation already and more favorable weather could help milk production recover from Q2 2024 onwards. Nevertheless, the country’s dairy industry remains in ‘a painful transition period’.

Milk prices tipped to increase

Farmgate milk prices are poised to recover from the lows seen in 2023 and firm up in all regions, Rabobank predicts.

In the US, Class IV prices will hold a premium over Class III the entire year, with butter prices remaining ‘firmly elevated’ and cheddar prices set to flatten as cheese production is likely to increase due to capacity expansion. Exports would again struggle to outpace the record highs seen in 2022, with global demand remaining softer. Rabobank’s forecast for milk production growth is 0.5%, slightly lower than USDA’s 0.7% outlook.

Australia is tipped to deliver strong milk supply and is predicted to finish the season 2.6% higher, with growth for 2024/25 in the range of 3-4%. Favorable weather with record rainfall from the fall and into January 2024 and more typical weather patterns through May 2024 will aid production. “Dairy farmers will enjoy a strong 2024,” the bank predicts, with elevated milk prices and margin-supportive pricing from July 1.

New Zealand has also generated stronger than expected production, which despite running 0.5% lower on volume has returned 0.8% higher milk solids collections; season-ending production is forecast to decrease by 0.7% according to Rabobank. Nevertheless, the new season is expected to ‘get off to a better start’.

China’s weak economic outlook could stun dairy consumption growth, though Rabobank expects ‘ongoing improvement in the supply-demand balance, with 2024 inventory levels lower than in 2023’. On milk production, Rabobank forecasts a 2% YOY growth and a slowdown in H1 2025 over weak to negative margins. The bank notes that China’s leading dairy farming companies have reported warnings of net profit loss or a sharp decline in net profit for their 2023 results.

As for imports, the bank forecasts 1.1% growth YOY including a 6% improvement in whole milk powder imports to 460,000mt due to New Zealand’s tariff-free access and 2023’s low-base effect. The scale of the increase is still 20% lower than the 10-year average, the bank noted, highlighting a trend that’s seen consistently declining powder imports to China.

In the EU, the demand outlook is also positive as shoppers regain confidence and inflation contracts. Prices of milk, cheese and butter have all declined according to the EU-27 dairy consumer price index, while higher sales volumes for butter and cheese have materialized in the final months in 2023 in Germany, the largest domestic consumer market in Europe. But across the region, consumers ‘are selective with their spending’, the bank notes, warning that ‘we should not anticipate big changes in demand recovery in 2024’. The bank forecasts a 0.4% year on year growth demand.

Weak farmgate margins will improve in the first half of 2024 thanks to strengthening milk prices, with the bank predicting prices in the main producing regions to remain near €50/100kg towards the seasonal peak. The 2024 farmgate base milk prices will average around €47.5/100kg according to the analysis.

Milk production across the bloc is tipped to remain negative until Q4 2024 when it’s predicted to increase 0.9% YOY.