A possible “whiplash” effect in the global dairy market is growing in probability, with a demand resurgence possibly emerging months before global milk production can recover, according to a new report from Rabobank.

In recent months, lower milk prices in most key global dairy regions have reduced supplies, Rabobank noted in its Global Dairy Quarterly Q3 2023 report. In the Northern Hemisphere, supply is contracting, driven by a declining herd and weaker yield in the US and by variable weather and tight margins in the European Union (EU).

All eyes are on New Zealand in the coming weeks as production ramps up quickly to the October peak, the report continued. Initial expectations called for a more robust production season, especially against the prior season’s weakness. Recent stark milk price cuts are compelling dairy farmers to lower production costs. These measures, coupled with El Nino, mean a lower peak might emerge in the country for another year.

Attention remains “laser-focused” on both supply and demand in China, the report said. Initially considered as paramount to the global dairy market recovery, myriad factors converged that push the longed-for
Chinese demand recovery even further into the future. The severity of the economic headwinds and the duration of the lull in economic growth are shrouded in uncertainty, reducing the likelihood of a strong demand recovery that would provide a solid bullish footing for global dairy markets and limit expectations for an import surge this year.

“In turn, the delicate balance of supply and demand persists,” the report noted. “Slowing global milk production will eventually match the tepid demand growth noted in most regions, preventing further price declines.”

However, a ray of optimism remains into the remainder of the year, according to the report: the US Class III milk price and the Global Dairy Trade (GDT)-weighted average price both fell to COVID-level lows in recent weeks, allowing buyers to replenish stocks at bargain prices.

Demand from Mexico, the second-largest dairy importer, has been robust, supported by a stronger peso. And, even though the GDT index has weakened, demand has not evaporated. China has historically accounted for around 50 percent of the sales, but since 2023’s second quarter, has ranged from roughly 30 percent to 40 percent.

In the second quarter of this year, Rabobank declared that “it’s always darkest before the dawn.” Clouds remain in the third quarter, “but the storm will not last forever. If buyer confidence increases and consumers flock back to procure products en masse, the world may be short on milk, providing a firmly bullish runway into 2024.

“There is reason for optimism in the coming months, but only after dairy farmers manage through the current financial pain,” the report added.
Rabobank’s report lists several dairy market factors to watch in the months ahead, including, among others:

•On a year-to-date basis (January-July), China’s whole milk powder (WMP) imports are down 40 percent versus the prior year, and 47 percent lower than 2021’s strong demand. China’s skim milk powder, whey, and cheese imports have increased by 21 percent, 25 percent and 18 percent, respectively, but account for much lower volume than WMP. Signs of increased

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