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RaboResearch senior analyst Emma Higgins says outlooks are shifting.
While global dairy commodity prices continue to climb in most key exporting countries, the second half of the year is expected to bring increased downside risks.
That's according to Rabobank's latest Global Dairy Quarterly report, which says modest production growth in the first few months of 2025 has underpinned firm dairy commodity prices, with output from the 'Big-7' dairy exporting regions (New Zealand, Australia, the EU, Argentina, Uruguay, Brazil, and the US) expanding 0.5% year-on-year (YOY) in Q1.
Report co-author RaboResearch senior analyst Emma Higgins says while this modest increase aligns with recent price strength, outlooks are shifting.
"Growth is projected at 1.1% in Q2 and 1.4% in Q3, marking the strongest quarterly increase since Q1 2021. The US and EU are expected to contribute to this growth with additional support from South America - granted, against weak prior-year comparisons."
However, signs of stress are emerging on the dairy demand side, including near record-low consumer confidence in the US, indicators of economic struggles in China and declining sales data from restaurants and consumer packaged goods companies across many regions.
Meanwhile, global trade conflicts remain elevated, with volatility and rapidly changing tariffs influencing dairy trade flows.
Nevertheless, Higgins says dairy product prices have surged to multi-year highs, with a $10.00/kgMS forecast Fonterra price for the 2025/26 season, positive signs at the Global Dairy Trade Auction and US dairy commodities showing bullish trends and strong Q1 exports, albeit prior to the implementation of retaliatory tariffs by China and Canada.
Higgins explained while Rabobank does anticipate risks emerging in the second half of the year due to expanding supply and demand uncertainty; this was expected to be a "recalibration" rather than a sharp downturn.
"[This is] a natural correction following a period of strong performance. Fonterra's highest on-record milk price forecast positions farmers for a likely second consecutive season of double-digit payouts and sustained profitability."
However, uncertainty around the macroeconomic backdrop to the 2025/26 season remains. Fonterra's forecast ranging from $8.00-$11.00/kgMS highlights potential market volatility, with similar ranges in other dairy companies potentially cause for concern.
Higgins explains that while RaboResearch sees the $9.50-$10.00/kgMS range as sensible to kick off a new production season, firm dairy markets and weaker currency over a sustained period could see a higher figure, whilst winter volatility and commodity price shocks could bring it down.
New Zealand dairy export volumes for Q1 rose 5% year-on-year, with shipments to China up 10% and increased demand also seen from Indonesia, Korea, and Sri Lanka.
This was driven by a weaker New Zealand dollar and stronger commodity prices, contributing an additional $1.5 billion in export value over the same period.
The report says New Zealand dairy farmer confidence remains high, with dairy production for next season expected to rise.
Sentiment was particularly elevated in the South Island, where land conversions to dairy are being discussed.
Higgins said while the scale of new conversions remains uncertain, any resulting milk growth is likely to materialise from the 2026/27 season onward.
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