Rabobank predict global supply growth – how could this impact British dairy producers?

British producers have enjoyed remarkable stability in prices in the preceding 12 months: average prices have been above 40ppl since July 2024 have ranged between 43 and 46ppl since last October.  Relatively high and stable farmgate prices and relatively low feed costs have incentivised GB milk production which has been running ahead by approximately 5% per annum since the start of the milk year.  Ordinarily we would expect to see market correction but weak supplies in the EU driven by animal disease and weather supported commodity prices over the summer.   However, is the market now reaching tipping point?

Rabobank are predicting a shift in market fundamentals for the second half of 2025 with a growth in global supplies faster than their initial predictions.  If this is not teamed with sufficient demand growth (unlikely given global economic challenges) this would pressure global prices. 

They estimate that milk supply growth for H2 2025 will be 2% before slowing to 0.4% growth in 2026.  That will be driven by robust growth in both the US (recovery in Californian production and growth in herd size and yields) and New Zealand (good margins and weather starting the season strongly).  The EU is also expected to return to growth with the easing of Bluetongue virus and good margins, although summer drought has impacted many.  South America is also predicting growth. On the other hand, Australian production is to be negatively impacted by drought.

The other side of the coin is global demand which is not expected to be strong.  Food service in many major economies has struggles, weak consumer confidence and inflationary pressures have also stymied retail demand. Building supplies and contracting demand is expected to pull back prices globally. 

This will have the potential to pressure UK commodity prices in turn – the key question is how quickly and if the slowdown in prices will be enough to curtail galloping production with the outlook for feed prices being currently bearish.  Dairy producers should be prepared for a period of lower stability and tighter margins ahead.

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