sign up log in
Want to go ad-free? Find out how, here.

The latest Rabobank Global Dairy report warns of more financial pain expected for dairy farmers, but that demand-led resurgence is now increasingly possible

Rural News / analysis
The latest Rabobank Global Dairy report warns of more financial pain expected for dairy farmers, but that demand-led resurgence is now increasingly possible
cows grazing in Waikato

This content is supplied by Rabobank.

With a full rebalance of the Chinese dairy market not expected in the near term, dairy farmers in New Zealand and around the globe will need to manage through more financial pain in the months ahead, according to Rabobank’s latest Global Dairy Quarterly report.

But the storm won’t last forever, the report says, and, with lower global prices stemming supply growth in key dairy production regions, there is an increasing possibility a demand resurgence could emerge well before milk output can recover, creating a whiplash effect in global markets and a bullish run in to 2024.

In the Q3 report, titled Progressing Past the Pain, Rabobank says a myriad of factors has converged to drive the longed-for dairy demand recovery in China – the world’s largest dairy importer – even further into the future.

“The severity of the economic headwinds and the duration of the lull in economic growth in China are shrouded in uncertainty, and this reduces the likelihood of a strong demand recovery that would provide a solid footing for global dairy markets,” report co-author Rabobank senior agricultural analyst, Emma Higgins said.

“On the supply side, we are now starting to see Chinese milk production begin to slow, and we do expect this trend to continue in the remainder of 2023 and into 2024, but a complete market rebalance in China is still a way off.”

The report says lower demand for dairy imports in China has reduced global dairy prices, and, in turn, flowed through to reduced global dairy production.

“Milk production from the Big 7 export regions – New Zealand, Australia, the EU, the US, Uruguay, Brazil and Argentina – is now anticipated to grow by 0.3 per cent year-on-year in 2023, downgraded from last quarter’s estimate of 0.7 per cent, with this driven by reductions in most key global regions, including the US, EU, and New Zealand,” Ms Higgins said.

“Into 2024, output is expected to climb by 0.4 per cent, far less than the 1.6 per cent annual average gain from 2010-2020.”

The report says slowing global milk production will eventually match the tepid demand growth noted in most regions, preventing further significant price declines.

While the immediate outlook for dairy prices remains challenging, Ms Higgins said, there is a ray of optimism for the months ahead.

“The US Class III milk price and the GDT-weighted average price both fell to Covid-level lows in recent weeks, allowing buyers to replenish stocks at bargain prices,” she said.

Demand from Mexico, the second-largest dairy importer, has also been robust, supported by a stronger peso. And, even though the Global Dairy Trade (GDT) index has weakened, demand has not entirely evaporated from China, which has accounted for roughly 30 per cent to 40 per cent of the sales on the GDT since Q2.”

The reports say these factors make a demand-led resurgence in global dairy markets in the months ahead a growing possibility.

“If buyers become increasingly confident that prices have hit a low for this cycle and flock back to procure products en masse, the world may be short on milk,” she said.

“And this could create a whiplash-like effect for global dairy prices, with the possibility that the weak global supply situation is faced with stronger demand.

“This does provide some reason for optimism over the coming months, but dairy farmers will need to manage through the current financial pain first.”

Rabobank milk price forecast

Due largely to lower Chinese import demand, the report says Fonterra’s opening farmgate milk price was reduced twice in August, dropping by $1.25/kgMS to a mid-point of $6.75/kgMS for the current 2023/24 season.

“Weaker Chinese import demand has also prompted a downwards revision of Rabobank’s milk price forecast from our initial forecast published in June,” Ms Higgins said.

“And Rabobank is now anticipating NZD6.75/kgMS for this season, in line with Fonterra’s latest forecast.”

Upside and downside price risks

The Q3 Global Dairy Quarterly report outlines several watch factors for the coming months which hold both ‘upside’ and ‘downside’ risks for global milk prices.

“Markets are bristling with risk right now and there are several factors that we are watching that would move the milk price needle here at home either way,” Ms Higgins said.

“Chinese import demand remains the most influential of these, given the changes in volumes we’ve seen over the last year,” Ms Higgins said. “On a year-to-date basis (January-July), China’s whole milk powder (WMP) imports are down 40 per cent versus the prior year. During the same period, skim milk powder, whey, and cheese imports have increased by 21 per cent, 25 per cent and 18 per cent, respectively, but these do account for much lower volume than WMP.

“So any signals of increased Chinese buying will be monitored closely, especially due to weaker forecasted milk production growth in dairy export regions.”

Ms Higgins said New Zealand milk output into the peak of the season will also be watched closely as global buyers estimate product availability into 2024.

“Any signs of significant weakness could send buyers back to the market, pushing prices higher,” she said.

“Our own expectation for the full 23/24 season is that New Zealand production will fall by -0.7 per cent year-on-year, driven by the lower milk price forecast.”

The report identifies El Nino, and dairy production in India as further watch factors.

“El Nino’s wrath, or lack thereof, could upend milk production in key parts of the world, with a meaningful departure from normal weather patterns holding the potential to shift production expectations,” Ms Higgins said.

“Production in India – the world’s largest dairy production and consuming country – will also be of interest. India is currently experiencing dryness and has limited exports of certain products like wheat, rice, and sugar, while disease has shrunk cow numbers, and milk prices are climbing quickly. And any reduction in production from India, could provide an unexpected demand boost for other dairy exporting nations.”

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.


Milk underwrites most of the value of the NZD so it'd be nice to see this rebound over our summer. Even the milk price would welcome a change of govt.