Insights February 2025

February summary on Dairy

• Global dairy prices have continued to rally over the past month. Gains in global dairy prices are being driven by tightening supply. The average sale price of all product categories have lifted in the past two sales events. Notably, both whole milk powder (WMP) and skim milk powder (SMP) have recorded consecutive lifts. Purchasing from the Middle East in preparation for Ramadan support WMP and butter prices. Demand is gradually improving, but supply is falling behind. Key producers in Australia and the US have both recently posted lower year-on-year production. With the gap between supply and demand unlikely to narrow in the medium term, downside to global pricing will be limited. Some volatility is expected as buyers back off should prices spike. But global dairy prices are well placed to maintain above average levels.
• Australian milk production in December of 799 million litres was a one per cent year-on-year decline. This puts season to date production one per cent ahead of this time last year. All states recorded lower year-on-year output in December. Though results at a national level would have been worse if not for Victoria recording a marginal drop of 0.2 per cent. Lower production at this time of year is part of the normal seasonal cycle. But the concern is so far this season, year-on-year production has been up. December results indicate that dry conditions may be starting to impact milk production.
• With the Global Dairy Trade Index now 17 per cent higher than when opening farmgate prices were set, local prices haven't kept pace. Step ups late last year lifted the average southern farmgate price to $8.20/kg MS, which is still 14 per cent lower than last season. In New Zealand, Fonterra has lifted farmgate prices 25 per cent from opening to sit around AUD$9.00/kg MS. Higher global pricing and fading local production are indicators new season prices will lift. But processors will be feeling the pressure to announce further step ups this season.

Download the full update from James Maxwell, Bendigo Bank Senior Agricultural Analyst