Global dairy market set for slow recovery in 2024
Source: The DairyNews
In the latest insights from Rabobank's Global Dairy Quarterly Q4 2023 report, the global dairy market is poised for a gradual rebound in 2024. Despite a modest recovery in Australia's milk supply during the first quarter of the new season, the market continues to grapple with limited growth in "new" milk and lackluster demand.
The report reveals that soft global dairy commodity pricing persisted in 2023 due to subdued fundamentals, with global milk supply growth experiencing three consecutive quarters of sluggish performance. Lower milk prices, elevated costs, and weather disruptions further impeded progress.
Looking ahead to 2024, Rabobank's global milk supply outlook indicates weakened growth, with a modest 0.3% increase expected for the entire year. Farmgate milk prices across export regions are anticipated to experience a slow recovery, ranging from 20% to 40% lower compared to the start of 2023. However, the bank notes that a more favorable 2024 feed cost outlook has led to recent increases in some regional milk prices, boosting farmgate margins.
Despite the positive signs, the market remains delicately balanced, and uncertainties persist regarding underlying demand for 2024. Rabobank underscores potential challenges such as geopolitical instability risks, volatile energy markets, and weak macroeconomic conditions, which could contribute to price volatility and market whiplash.
A key factor to watch in 2024 is demand, as high dairy inflation, broader cost-of-living concerns, and weak consumer confidence loom on the horizon. While peak food and dairy inflation have passed, market uncertainty prevails, especially with rising unemployment impacting purchasing power. Rabobank notes that emerging markets and low-income households face the most pressure in this scenario.
In China, consumer prices are falling, and foodservice recovery continues, but overall consumption growth is sluggish. Rabobank expects China's import volume to flatline in 2024, presenting an opportunity for importers outside of China to build stocks.
Australia's milk supply has modestly recovered, reaching 2.036 billion liters in the July to September period, a 0.5% year-on-year increase. However, growth remains elusive in Western Victoria and Northern Victoria due to the impact of El Niño, leading to dry conditions and below-average rainfall between August and October.
While Australian dairy farmers are well-equipped to combat seasonal challenges, Rabobank notes that cost inflation on farms has peaked, with milk production costs entering the next phase of the cycle. Despite interest rate increases and inflation across overhead costs, Australian farmgate milk prices are expected to remain at or near record levels, providing a buffer for the sector against global market fluctuations.
However, Australian dairy exports have experienced a significant decline, with export volumes down more than 13% year-on-year in the first three months of the new season. The report attributes this decline to a tight domestic milk supply and export price competitiveness issues. As Australian households adjust their purchasing behaviors in response to an income squeeze, Rabobank anticipates a gradual stabilization of Australia's exportable surplus over the course of 2023/24, contingent on a further recovery in milk supply.
Looking ahead to 2024, Rabobank's global milk supply outlook indicates weakened growth, with a modest 0.3% increase expected for the entire year. Farmgate milk prices across export regions are anticipated to experience a slow recovery, ranging from 20% to 40% lower compared to the start of 2023. However, the bank notes that a more favorable 2024 feed cost outlook has led to recent increases in some regional milk prices, boosting farmgate margins.
Despite the positive signs, the market remains delicately balanced, and uncertainties persist regarding underlying demand for 2024. Rabobank underscores potential challenges such as geopolitical instability risks, volatile energy markets, and weak macroeconomic conditions, which could contribute to price volatility and market whiplash.
A key factor to watch in 2024 is demand, as high dairy inflation, broader cost-of-living concerns, and weak consumer confidence loom on the horizon. While peak food and dairy inflation have passed, market uncertainty prevails, especially with rising unemployment impacting purchasing power. Rabobank notes that emerging markets and low-income households face the most pressure in this scenario.
In China, consumer prices are falling, and foodservice recovery continues, but overall consumption growth is sluggish. Rabobank expects China's import volume to flatline in 2024, presenting an opportunity for importers outside of China to build stocks.
Australia's milk supply has modestly recovered, reaching 2.036 billion liters in the July to September period, a 0.5% year-on-year increase. However, growth remains elusive in Western Victoria and Northern Victoria due to the impact of El Niño, leading to dry conditions and below-average rainfall between August and October.
While Australian dairy farmers are well-equipped to combat seasonal challenges, Rabobank notes that cost inflation on farms has peaked, with milk production costs entering the next phase of the cycle. Despite interest rate increases and inflation across overhead costs, Australian farmgate milk prices are expected to remain at or near record levels, providing a buffer for the sector against global market fluctuations.
However, Australian dairy exports have experienced a significant decline, with export volumes down more than 13% year-on-year in the first three months of the new season. The report attributes this decline to a tight domestic milk supply and export price competitiveness issues. As Australian households adjust their purchasing behaviors in response to an income squeeze, Rabobank anticipates a gradual stabilization of Australia's exportable surplus over the course of 2023/24, contingent on a further recovery in milk supply.
