EU milk supplies continue to face challenges, with disease impacting cow numbers and restricting milk growth. While conditions are generally favourable in some regions and margins remain solid, output is still struggling to build at the necessary pace.
Despite the usual seasonal uptick in milk production, it is becoming increasingly unlikely that milk supplies will grow year-on-year through the spring flush. Prices for fat and cheese have firmed once again, but the outlook remains uncertain. The market’s performance will heavily depend on spring pasture conditions, which will influence commodity output in certain regions.
In New Zealand, late-season milk output is also under pressure, primarily due to ongoing drought conditions.
However, this is not expected to cause any disruption to product supplies. Demand for high-protein products has helped mitigate the impact of a fragile Skim Milk Powder (SMP) market.
In contrast, abundant Anhydrous Milk Fat (AMF) is expected to gain traction, although it will likely be sold at a considerable discount to butter in developing markets.
In the United States, the market is facing a glut of butterfat, which is exacerbating an already fragile cheese market as new plant capacity continues to come online.
While limits on young cattle will likely constrain milk growth in the first half of 2025, increased output from new plant capacity is expected to contribute to ongoing volatility in the cheese market. The success of cheese trade with key contested markets will be critical for both U.S. and EU producers moving forward.
In China, there are a few early signs of a rebalancing within the milk supply chain, mostly attributed to weaker milk output. However, any meaningful growth in the demand for UHT milk and ingredients has yet to materialise.
In Australia, milk output continues to slow in the southern regions.
The situation worsened in January due to dry conditions, and these challenges are expected to persist, given the current climate outlook. As a result, the full-season outlook for Australian milk has been revised downward, now forecasted to decrease by 0.3 per cent in milk solids, with a sharper 2.3 per cent decline expected in the first half of 2025.
This suggests the likelihood of increased farm exits during the first half of 2025.
In late February 2025, several companies raised their milk prices, which has contributed to keeping milk values favourable. The outlook for milk prices in the 2025-26 season is beginning to come into focus, with projections indicating a price range of $9.00 to $9.40 per kilogram of milk solids, based on the anticipated product value trends.
On the trade front, Australian dairy exports continue to grow, with a 27.5 per cent year-on-year increase in December. Exports have risen every month since December 2023, reflecting ongoing demand for Australian dairy products.
A good example of the increase in export in December was the announcement that Australia had made a bilateral trade agreement with the United Arab Emirates (UAE), with high hopes it’ll lead to an uptick in exports to the region.
The Australian Dairy Industry Council (ADIC), supported the push for a trade agreement with the UAE.
“Today’s announcement by the Minister for Trade, Don Farrell, represents a strong opportunity in an important export market for Australian dairy,” said ADIC Chair, Ben Bennett. “We congratulate Minister Farrell on the announcement, which we hope leads to improved market access for our dairy product. We understand this agreement will mean more agreeable trading conditions between the two countries and look forward to seeing the detail on what that looks like for dairy.”
ADIC deputy chair, John Williams, said the UAE was Australia’s largest trade and investment partner in the Middle East.
“Through the Comprehensive Economic Partnership Agreement (CEPA), Australia gains an advantage in trade with the major players in the Gulf Cooperation Council (GCC) countries,” he said. “The GCC countries collectively import approximately 900,000 tonnes of dairy product annually.
“As a combined market it’s one of the largest dairy import markets globally, roughly equivalent in size to large economies like the United Kingdom. Australia is a relatively minor supplier of dairy products to the GCC region, though this has not always been the case. This agreement is bound to help Australian dairy’s competitiveness.”