Rabobank warns of rising dairy production costs, market shifts

GLOBAL – A report by Rabobank highlights the growing disparity in production costs among global dairy producers, with rising expenses widening the gap between high and low-cost producers. 

According to Emma Higgens, a senior analyst in agriculture at Rabobank RaboResearch, milk production costs have remained above the five-year average despite a temporary decline in 2024. 

She notes that the global dairy landscape is shifting, with China increasing its cost competitiveness while Oceania continues to maintain the lowest production costs.

Rabobank’s analysis suggests that dairy producers will encounter higher and more unpredictable operational costs over the next decade due to regulatory pressures, energy transitions, climate change, and rising interest rates. 

These challenges place dairy producers in a vulnerable position during periods of declining milk prices, making cost control a critical factor for sustainability. 

According to the report, producers with a strong focus on efficiency will be better positioned to maintain margins and meet medium-term demand.

The second half of 2024 marks a turning point for milk supply growth across key dairy-exporting regions. 

Milk production in the Big 7 export regions is expected to grow by 0.5% year-over-year, recovering from a similar decline in the second half of 2023. 

Notably, Oceania is experiencing its largest seasonal peak in over a decade, supporting this increase. 

The report forecasts a continued supply expansion in 2025 across all regions for the first time since 2020, with an expected growth rate of 0.8%.

Farmgate milk prices have been trending upward, with favorable feed prices and availability supporting improved dairy farm margins. 

Rabobank’s report indicates that these conditions will likely lead to further margin expansion in 2025, creating a more stable outlook for dairy producers. 

However, global dairy demand remains mixed, with consumer spending under pressure in several economies. 

The report notes that food service channels continue to struggle in major markets, while retail sales benefit from consumers choosing to eat at home more frequently. Despite this, there are indications of reduced dairy purchases, particularly in emerging markets.

Deflation in dairy prices has been observed in some regions, which has helped ease pressure on consumer budgets. 

Rabobank reports that dairy supply chains in major markets have been adjusting in anticipation of seasonal and holiday demand.

Moving into 2025, the global dairy market is expected to remain relatively balanced, with improved demand and increased dairy product availability.

The report also notes that China has made significant progress in rebalancing its dairy stocks, and under normal trade conditions, current dairy commodity prices should support farm margins while maintaining stable costs for food and beverage manufacturers.