After several quarters of stagnant milk prices, the dairy industry is expecting a positive margin outlook through the rest of the year, according to the recent global dairy report from Rabo AgriFinance. One of the report’s authors, Lucas Fuess, Senior Dairy Analyst for RaboResearch Food & Agribusiness, said there have been several market swings in dairy products. Fuess said that of biggest concern for consumers is the skyrocketing prices of butter; and for producers, changes in demand from previously large importers of dairy products are also notable.
On a global scale, Rabo AgriFinance found in its report that demand from China, Japan and South Korea, along with Southeast Asian countries, is muted. Historically, these nations were large importers of dairy from the U.S., European Union, and New Zealand. Fuess surmises that the stagnant demand is because of China’s “domestic-focused initiatives” to improve its milk production, while other Asian countries built up stocks of powdered dairy products during the COVID-19 pandemic, and are still using those reserves.
“China has done a pretty tremendous job growing milk output there, which has slightly reduced their need for imported dairy products like we might have seen a few years ago,” Fuess said.
The global dairy report notes that despite flatter milk prices, there is strength in commodities like cheese and nonfat dry milk, which are experiencing increased demand. This is “good news overall for dairy farmers,” Fuess said.
For American producers, the largest importer of their product is Mexico. The U.S. anticipates seeing a persistence in demand of cheese from the country as consumption continues to grow. He says there is lots of opportunity for Mexico to expand their import market. America’s other neighbor, Canada, meanwhile shows no motivation to open their borders to increased trade.
“The U.S. did see some gains in the USMCA agreement that was negotiated a few years ago, but overall, Canada remains a very restrictive country when it comes to dairy imports or exports,” Fuess said.
A risk factor impacting fluid milk production in the United States is the avian influenza outbreak. Fuess noted that currently, the market has seen only minimal impacts from the pathogenic disease. “It’s certainly a watch factor as we move forward, and will continue to monitor cases and locations,” he said. “Texas milk production was a little bit lower in March versus February, which is rare… so there may be some subtle impacts there, but nothing significant enough to drive a huge change in overall prices.” However, the global dairy report indicates that demand for fluid milk has yet to be adversely impacted by the outbreak.
For the consumer, the report indicates that butter prices are the biggest cause for concern in purchasing habits. “We’ve seen very firm consumer demand, and a lot of nervousness around where prices might ultimately go,” he said. “Butter is a bit of an outlier lately.”
In 2022, a new record for butter prices was met, which was then exceeded the following year. Come first quarter of 2024, a new price record was once again made.
“Three dollar per pound butter is almost unheard of, and it represents an end-user nervousness around overall supply availability as that demand continues to build,” he said, “California farmers in particular have a benefit of being in some Class IV heavier markets, depending on where they ship their milk to.” Reasons for high prices for butter include limited investments in new processing plants for the commodity and an increased need in the food service industry for the product. “Companies are finding that the consumers recognize that cooking with butter tastes better. It can improve the quality of their product,” he said. Consumer trends like cooking with healthy fats and single-ingredient products also contribute to the positive demand trends around butter.
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