Insights October 2024

Insights October 2024
Commodity Overview
- Dairy markets have taken a positive turn in the past month. Global dairy prices have increased, driven by improved Chinese demand.
- The announced closure of King Island Dairy and Beston Global Foods entering voluntary administration continues the trend of consolidation in the Australian dairy processing landscape.
Global dairy prices crept higher in the past month. This suggests an improvement in global demand. The Global Dairy Trade (GDT) index rose in each of the last two fortnightly auctions for a total gain of 1.9 per cent. This placed the GDT index 22.1 per cent higher year-on-year and at its highest point since October 2022. Price trends have varied across the major dairy products. Cheddar saw the largest gains in the last month, up 6.5 per cent. This continues the steady climb in cheddar prices which have risen 15.7 per cent since July. This follows a stable first half of 2024. Whole milk powder (WMP) also saw growth in the last month, up 4.8 per cent to its highest point since October 2022. Skim milk powder (SMP) prices were relatively steady in the most recent GDT auction. Prices eased 0.5 per cent after gaining 10.6 per cent across the prior three auctions. Butter prices continued to ease, down 4 per cent month-on-month and 12.8 per cent lower than a peak in mid-June. Despite the recent decline, butter prices are still relatively high, up 33.3 per cent year-on-year.

Chinese demand will be the key factor to watch moving forward. This follows increased Chinese buying being the major driver of recent gains in WMP and SMP prices. Reducing stockpiles of milk powders in China has led to increased purchasing. Furthermore, economic stimulus by the Chinese government is anticipated to support increased dairy consumption. Domestic supply would be prioritised, but demand may spill over into imports. Further improvements in Chinese demand would be a pivotal factor supportive of further gains in global dairy prices.
While there is some optimism for improved demand, global supply should remain stable. US milk production is forecast to decline in 2024. Lower cow numbers and reduced production per cow are driving this decline. In contrast, New Zealand milk production saw strong growth in August. Production for the month was up 9 per cent and the highest August production since 2020.
Australian milk production could be set to tighten through spring as dry conditions impact major dairy regions. This would follow national milk production in July being 1.6 per cent higher year-on-year. Dry conditions affected most of Victoria, South Australia and southern New South Wales in August and September. These regions account for around 75 per cent of Australian milk production. Rainfall outlooks to the end of the year are positive. However, these long-term outlooks have shown a similar indication for most of 2024, without much rainfall eventuating.

The slow climb of global dairy prices and tightening Australian production starts to create room for potential step-ups to farmgate milk prices. A lift in Fonterra’s 2024/25 New Zealand farmgate milk price during September adds a positive signal. The NZ50c/kg MS lift took the price to a mid-point of $NZ9/kg MS. However, it is unlikely that any step-ups in Australia would occur until late in the season.
Consolidation in the dairy processing sector continued in September. The start of the month saw Saputo announce the closure of King Island Dairy by the middle of 2025. This was followed later in the month by South Australian processor Beston Global Foods entering voluntary administration. A challenging set of circumstances were cited as the reasons for Beston’s move. These included: COVID-related debt, higher operating costs and Australian farmgate milk prices being uncompetitive in global markets. These developments highlight the challenges processors have faced in recent years.
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