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DAIRY COMMODITIES – MARKET INTELLIGENCE

Slow but steady gains in dairy commodity prices have been a trend till H2 2024. Coupled with lower expected feed costs, an improved margin outlook has eventually driven milk production growth in the Big 7 till H2 2024. It will likely not be a record price year by any measure, but farmers around the globe have welcomed the return to profitability.

There is a horizon for improved global dairy prices, but farmers around the world don’t see huge profitability as margin challenges have persisted so far. Dairy product price forecasts in most key regions indicate a better Q3 and Q4 in 2024 following a challenging 2023, with improved margins. Milk supply growth continues to improve but a return to production expansion will take time. We have seen lower YOY output for the first two quarters of this year before volume showed a positive turn into late Q2 as we move to Q3.

In recent months, lower milk production has been also relatively neutralized by sluggish global demand. Looking ahead, we see that demand is on the upswing. The worst of the recessionary fears has passed in some countries while global economic growth will likely be subdued, the overall outlook is modestly improved. The low level of global dairy product stocks, though, means any supply shock or demand event will result in an upside price risk for dairy product end users.

 

Whole Milk Powder (WMP) should remain neutral due to balanced supply and demand and strong import demand from Africa and Southeast Asia. New Zealand shall remain a key supplier due to competitive pricing. Although internal EU supply & Chinese production is weak EU production has been so far stable till H1 24.

Skimmed Milk Powder (SMP) EU, production through H1 2024 is down 1.5% YoY and with limited supply we have seen the products being very competitive. The rise of Prepared Dry Mixes, Confectionery, Dairy, Bakery and others has transformed the Skimmed Milk Powder Market by providing new sales channels and increasing accessibility for consumers.

The Global Skimmed Milk Powder market is anticipated to rise at a considerable rate during the forecast period, between 2024 and 2032. In 2024, the market is growing at a steady rate and with the rising adoption of strategies by key players, the market is expected to rise over the projected horizon.

Butter has been fluctuating globally due to supply constraints. Supply has been limited especially in the EU, with production issues from key producers like Ireland. Butter prices in New Zealand are expected to potentially ease, though they may remain relatively much higher than average throughout the year vs the past.

 

GLOBAL MARKETS:

USA: Year-over-year (YOY) price declines and moderate growth in shipment volumes for several U.S. dairy products have impacted the total dairy export values. However, the latter half of 2024 might witness increased demand for skim products due to improved U.S. price competitiveness. Non-fat dry milk and whey, crucial for exports, have faced sustained lower prices in the first half of 2024, with weak volumes influenced by soft demand from East and Southeast Asia. Fluid milk production is projected to increase by 1%, and cheese production is set to experience a 2% boost, driven by expanded processing capacity and accelerated milk production.

Australia: Overcoming Challenges for Milk Production Surge as Australia expects a 1% increase in fluid milk production to 8.5 million tons in 2024. Strong farmgate milk prices are anticipated to provide further impetus for increased milk production. Cheese production is forecasted to rise by 5%, with exports rebounding significantly in 2024.

New Zealand: New Zealand anticipates a marginal decline in milk production to 21.2 million tons in 2024, attributed to challenges such as El Niño weather patterns, reduced farmgate milk prices, on-farm inflation, and a shrinking dairy herd. Butter production is expected to rise by 3%, while whole milk powder production will decline. Cheese exports are forecasted to decrease due to heightened competitiveness from Australia and EU.

European Union: The European Union projects a marginal decline in milk production, with a focus on cow productivity improvements. Challenges such as persistent declines in farmgate milk prices, high production costs, and environmental regulations pose obstacles. Despite weaker milk production, cheese production is forecasted to increase marginally, driven by higher profitability. EU cheese exports are estimated to climb by 1% in 2024.

Argentina: Argentina expects a 2% decline in milk production in 2024, attributed to currency devaluation pressuring producer margins. Increased costs of feed and imported inputs are likely to curtail output per cow. Producers face challenges due to economic factors, affecting the overall dairy industry.

Over all the global dairy landscape for the balance 2024 presents a mixed outlook, with challenges and opportunities shaping the production and trade dynamics in different regions.