According to a new RaboResearch report, global dairy commodity prices continued to rise in recent months across most key export regions, defying expectations and economic headwinds. Milk production growth has been modest. Further into 2025, the sector will need to navigate a mix of bullish supply signals and fragile demand fundamentals.
Milk production grew modestly across the Big 7 exporting regions in Q1, expanding by just 0.5% year-over-year. However, production growth is forecast to accelerate to 1.1% in Q2 and 1.4% in Q3 – the strongest quarterly increase since early 2021 – driven by growth in the US, EU, and South America.
In total, RaboResearch forecasts 2025 milk production from the Big 7 at 326.7 million metric tons, an increase of 1% year-on-year or 3.2 million metric tons, the highest annual volume gain since 2020.
In many economies, consumer sentiment has waned amid weak and uncertain global economic conditions.
Said Mary Ledman, Global Dairy Strategist: “A number of factors are weighing on the demand outlook. These include: near-record-low consumer confidence in the US, troubling indicators of economic struggles in China, and declining sales data from restaurants and consumer packaged goods companies across many regions.”
Retail dairy prices saw deflation in nearly all regions during parts of 2024. However, higher milk and dairy product prices in the second half of 2024 have continued into 2025, translating to higher prices for consumers at retail and foodservice outlets.
Dairy product prices, particularly in Oceania, have surged to multiyear highs. Oceania whole milk powder exceeded USD 4,300/metric ton for the first time since April 2022, and Fonterra announced a record-high forecast price of NZD 10/kgMS for the 2025/26 season. In the US, most dairy commodities showed bullish trends into late May, and dairy exports remained strong through Q1, even as retaliatory tariffs from China and Canada loomed.
Still, ongoing trade tensions and tariff volatility are key risks, says Ledman. “Global trade conflicts remain elevated, with volatility and rapidly changing tariffs emerging weekly. These factors are influencing global dairy trade flows.”
Demand trends are expected to weigh on prices, especially as key global buyers become aware of increasing milk production. Concerns persist about weak Chinese demand, slowing economic growth, trade tensions, and high Oceania whole milk powder prices.
Concluded Ledman: “Dairy companies and downstream multinational consumer packaged goods companies will find it challenging to pass on higher dairy costs to consumers still grappling with post-Covid inflation. We anticipate downside risks emerging in the second half of the year, driven by expanding supply and demand uncertainty. However, rather than a sharp downturn, we expect a recalibration from recent multiyear highs – a natural correction following a period of strong performance.” For more visit rabobank.com
