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Q1 Rabobank update - Healthy margins promote global dairy production growth
Thursday, 3 April 2025
The key dairy exporting regions are expected to see modest growth in production in 2025, with strong milk prices and lower feed costs being the major drivers. However, trade uncertainty remains a key concern to global milk markets, particularly for US trading partners, say Rabobank.
Commodity prices generally strengthened in the second half of 2024 and have continued into Q1 2025 despite the return of global milk production growth. Production in key exporting regions is expected to increase by 0.8% in 2025, with a 0.9% year-on-year growth in the second half of the year. This is expected to lead to a new production record, surpassing the peak set in 2021.
Higher farmgate prices among key dairy exporting regions is supporting this growth, with increases to continue into the first half of 2026. The EU and the US will be key drivers in the total forecast, with both regions expected to return to modest production growth. Oceania and South America are also forecasted to see gains.
EU and the UK
In the EU, milk production is forecast to increase by 0.5% year-on-year, supported by good producer margins. In January, the average farmgate milk price in both the EU and UK was 20% higher than the previous year. However, risks such as Bluetongue and new US tariffs could present barriers to growth. The Foot and Mouth situation will be closely monitored, although the lifting of restrictions for Germany has reduced the effects on trade. Feed prices are now rising but remain relatively low and margins are expected to remain favourable over the year.
Dairy demand in the EU is stable and expected to rise as the economy is set to grow by 1.2% in 2025.
Oceania
In 2024, New Zealand’s export volumes marked a 3-year high and have seen a strong start to 2025. Positive economic producer conditions have boosted sentiment in New Zealand and production growth is expected to continue, with 2.5-3% growth predicted for the full 2024/25 season. The start of the new season in the second half of 2025 is expected to see marginal growth.
Australian milk volumes began to decline in late 2024 followed by a 2.6% year-on-year decline in January. However, production has now picked up and, for the 2025/26 season, production is forecast to grow by 0.7%, benefitting from improved farmgate prices and lower feed costs. The forecast does remain highly dependent on weather conditions, with drought posing a threat to both Australia and New Zealand.
South America
In Brazil, milk production is projected to grow by 2% in 2025, driven by favourable margins. In Argentina, a 4% increase is predicted, compared to a very weak 2024. Drought presents risk to the forecast to both Argentina and Uruguay due to La Nina weather events. South American exchange rate volatility may also impact trade flows, as a stronger peso could lead to a decline in exports.
US
Milk production grew in January for nearly all regions in US except California, which continues to be impacted by Avian Influenza. According to the USDA, the cow numbers are up by 41,000 head in January compared to the same period last year.
Rabobank projects a 0.5% increase to production in 2025 as a whole, compared to 2024 supported by healthy farm gate prices and lower feed costs. However, the impact of new government policies on the dairy market are still uncertain and trade and tariff negotiations are of top concern.
China
In contrast, milk production in China is expected to decline by 2.6% year-on-year in 2025. A reduction of cow numbers and a 15% decline in farmgate prices (in US dollar) in February has discouraged production increases. Import volumes are expected to increase on the back of the supply reduction and some recovery in demand.
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