Dairy prices improve amid ongoing supply, demand challenges - Rabobank

Cautiously optimistic outlook for the dairy industry
calendar icon 12 March 2024
clock icon 2 minute read

Against a backdrop of buyers with adequate inventories and macroeconomic concerns, global dairy demand has shown sluggishness in recent months, and milk supply growth continues to struggle. 

“Key exporting regions experienced weaker year-on-year production in the second half of 2023, and we forecast lower output for the first two quarters of 2024 before a positive turn in the latter half of the year,” explained Lucas Fuess, senior dairy analyst at Rabobank.

After two consecutive quarters of weaker supply, a firmly bullish price response would typically have materialized. However, with global buyers' current stock levels and broader economic worries offsetting lower milk volumes, the supply and demand balance is different this time.

Dairy commodity prices to show slow but steady increases

The recent equilibrium between weaker supply and weaker demand will slowly shift throughout 2024, with prices moving to the upside as milk production continues to struggle but demand subtly improves. Slow but steady price increases among most dairy commodities will materialize in the coming months. A return to 2022 price levels is unlikely, but gains versus 2023’s lows are probable. Coupled with lower expected feed costs, an improved margin outlook will eventually drive milk production growth in the Big 7 by the second half of 2024. 

“It will likely not be a record price year by any measure, but farmers around the globe will welcome the return to profitability,” noted Fuess.

Low global stocks leave prices vulnerable to upside risk

“Looking ahead, we see increasing evidence that demand is on the upswing, with recessionary fears abating in some countries and a modestly improved economic outlook,” said Fuess. 

The Global Dairy Trade auction has seen positive price movement, signaling a potential uptick in demand. Yet, given the low level of global dairy product stocks, any supply shock or demand event presents an upside price risk for dairy product end users.

Moreover, geopolitical conflict persists in various regions worldwide, including in Ukraine and the Middle East. Further conflict escalation carries risks for global dairy demand, while shipping challenges remain in the Red Sea, increasing the time and cost of items in transit.​

Additionally, it is an election year in many key dairy regions, with the European Parliament elections approaching in June, while the US will elect a president and many members of Congress in November. New Zealand's new government, elected in October 2023, is implementing new policies. 

“Any potential leadership shifts could also mean new approaches to policy, including free trade agreements, sustainability policies, or nutrition priorities that trickle back to impact dairy prices,” explained Fuess.​

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