Supply chain developments and consumer demand continue to have a heavy impact on the global dairy market, but forecasts look positive for Australia.
Global fundamentals remain mixed across products and major producing regions, but there are developments in supply and demand that have altered the outlook.
Global trade declined 1.5 per cent year-on-year in Milk Solids Equivalents (MSE) terms in April but was 3.2 per cent higher in the last quarter. The April decline was mostly due to weaker trade for major milk powders and fats, while cheese and dry whey trade expanded significantly.
The seasonal firming in the EU fat market will likely come in Q3-2024, but the supply side is uncertain. Milk output will gradually improve across the region as warm weather sets in, but rainfall in the short-term remains widespread and the ongoing effect of excess moisture on forage quality and milk solids output
is uncertain.
Tighter cream supplies due to both demand and supply effects will stabilize the butter market. Elevated prices may burn off some demand but the larger threat in Q4 from seasonally higher NZ availability lingers.
The durability of global fat demand (already weaker at higher prices) as NZ output builds will have a critical influence on the EU market.
Sluggish demand and sustained higher NZ supply will continue to limit the upside for SMP, despite low EU and US stocks.
While trade in developing market regions outside China increased as buyers restocked, increasing ingredient prices will test viability of trade (especially in MENA) in coming months.
The US cheese market remains important due to the contest between the big three producers. Tighter stocks, lower cheddar output, and improving demand should be supportive.
The US production outlook is uncertain despite cheese capacity additions. While central region milk solids output is growing, supply faces headwinds due to limited heifers and poor margins.
This comes on the back of a mid-year forecast from Rural Bank, stating Australian dairy farmers will produce around 4.6 billion litres in the second half of the year.
This is on pace with the previous year which say Australian dairy farmers produce 4.62 billion litres of milk from July to December of last year. However, this will still be around four per cent below the yearly averages. But combating this drop, are figures showing the rate of dairy farmers leaving the sector slowing down.
“Dairy farmers will have to contend with tighter margins in the upcoming season. While input costs have stabilised, lower farm gate prices will reduce profitability,” Mik Harford, Agribusiness relationship manager, Leongatha.
“Seasonal conditions vary significantly in the dairy regions with some facing very tough conditions that will challenge milk production in those areas, but the national milk pool should remain reasonably stable if slightly down on last year.
“With recent seasons delivering favourable economic conditions, milk producers have had the opportunity to invest in their businesses which will help them cope with lower prices this season.
“For most dairy farmers a profitable season in the 24/25 season remains on the cards, but dry conditions will see some facing a tough year ahead.”