Dairy prices to remain elevated despite modest global supply growth

THE global dairy market is poised for modest supply growth in 2025, driven by steady production expansion and export demand, according to a new report by food and agribusiness banking specialist Rabobank. In its Q1 Global Dairy Quarterly report, titled Modest growth amid trade shifts, Rabobank says for Australia, despite milk production beginning to decline in late 2024, after seven months of the current season, overall production is 0.4 per cent higher year on year (YOY). Report co-author, RaboResearch senior dairy analyst Michael Harvey said production is weak in western Victoria and Tasmania, but remains strong in eastern and northern Victoria and in New South Wales. “The outlook for milk production heading into the seasonal spring peak this year – and for the 2025/26 season overall – will be heavily dependent on rainfall and weather conditions,” he said. The report says summer rainfall over many key dairying regions had been average or “worse”. Looking forward, it says, above-average rainfall is expected for parts of the east coast, with autumn being a critical period. Mr Harvey said favourable autumn rainfall would support better feed supply outlook and support milk flows. RaboResearch forecasts overall Australian milk production growth of 0.7 per cent YOY for the 2025/26 season. The report says Australian dairy exports had a very strong year in 2024. “With slightly increased farmgate milk supply last year and higher export returns, export volumes were higher across the main dairy commodities,” Mr Harvey said. “Of the two largest volume trade flows, Australian cheese exports jumped 30 per cent and skim milk powder exports lifted 27 per cent YOY.” Mr Harvey said the outlook for Australia’s dairy trade will be shaped by milk availability moving into the new season and “the seasonal flush” (the springtime peak of milk volumes). “Export returns are likely to remain attractive, but milk supply growth (impacting supply availability for export) has slowed,” he said. In terms of local demand, Mr Harvey said, with inflation continuing to trend lower and recent interest rate relief, this should provide a lift in discretionary consumer spending and a subsequent boost to foodservice demand. According to the report, global dairy prices look set to remain at elevated levels. It expects milk production in the Big 7 dairy-export regions (the EU, US, New Zealand, Australia, Brazil, Argentina and Uruguay) to expand by 0.8 per cent YOY for 2025, with a similar gain in the first half of 2026. The report says this forecast is driven largely by a return to production growth in both the EU, where production has oscillated between growth and contraction in recent quarters, and the US, where the typical annual production gains of one per cent have stagnated in recent years. Mr Harvey said global supply growth was likely to be stronger in the second half of 2025 than the first. “2025 will begin with slower production gains, estimated at 0.5 per cent in Q1, which will help maintain the current firm commodity prices,” he said.

Dairy prices to remain elevated despite modest global supply growth

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