By Dairy Dimension News Desk
Reading Time: 4 minutes
As the global dairy industry heads into the second half of 2025, Rabobank warns that a delicate balance between rising milk supply and softening demand could temper the sector’s recent gains. In its latest Dairy Quarterly, the bank outlines emerging downside risks, signalling that the current bullish streak may evolve into a period of recalibration rather than collapse.
Production Growth Accelerates in Key Exporting Regions
The global milk supply has expanded modestly in the first quarter of 2025, with the seven largest dairy exporters—New Zealand, Australia, the European Union, Argentina, Uruguay, Brazil, and the United States—reporting an average year-on-year growth of 0.5%.
However, RaboResearch senior analyst Emma Higgins notes this trend is gaining momentum. “We expect production to climb by 1.1% and 1.4% in the second and third quarters, respectively—the strongest quarterly growth since Q1 of 2021,” she stated.
The increase is expected to be led by the US and EU, supported by a rebound in South America. Yet, this optimism comes with a caveat. Much of the growth is being measured against a weak 2024 baseline, which skews comparisons.
Demand Cracks Emerge Across Key Consumer Markets
On the demand side, troubling signs are surfacing. The US is witnessing near-record-low consumer confidence levels, while economic indicators in China suggest tightening household spending. Meanwhile, declining sales from restaurants and packaged food companies across several regions reflect broader market fatigue.
“These stressors are beginning to weigh on dairy consumption, and we anticipate growing downside risks in H2 2025,” Higgins explained. “However, this is more of a correction than a crash—a normalisation following a period of record-high prices.”
Global Trade Uncertainty Complicates Outlook
Amid these market shifts, geopolitical uncertainties and volatile tariff regimes continue to shape global dairy trade dynamics. Frequent changes in trade policy are impacting export competitiveness and complicating long-term planning for producers and processors alike.
Despite these uncertainties, dairy prices—particularly in Oceania—remain historically high. The Global Dairy Trade (GDT) index has shown consistent strength, buoyed by sustained demand for whole milk powder and butterfat products.
Fonterra’s Record Milk Price Forecast Sends Mixed Signals
Adding fuel to the optimism, New Zealand dairy giant Fonterra has announced a record opening milk price forecast of $10/kg milk solids (MS) for the 2025–2026 season—the highest in its history. The company has projected a broad range between $8 and $10/kg MS, reflecting both bullish potential and underlying market volatility.
“Dairy companies are acknowledging the uncertain macroeconomic backdrop to the 2025–26 season,” Higgins noted. “While $9.50–$10/kg MS is a realistic base, any upward movement will require continued firmness in global dairy markets and favourable currency dynamics.”
New Zealand’s Dairy Sector Poised for Expansion
Farmer confidence in New Zealand remains notably high, particularly in the South Island. Discussions around converting more farmland to dairying—especially in Canterbury and Otago/Southland—are gaining traction. However, the impact of these changes will likely materialise from the 2026–2027 season onwards.
For now, New Zealand’s milk collections are forecast to rise by 2% year-on-year for the 2025–26 season, approaching the record volumes seen in 2020–21.
Conclusion: A Market at a Crossroads
The second half of 2025 will be a litmus test for the global dairy industry. While strong farmgate prices and production growth offer reasons for optimism, softening consumer demand and unpredictable geopolitical conditions warrant caution.
For stakeholders across the Indian dairy industry, from producers and processors to policymakers, the coming months present both challenges and opportunities. Navigating this complex landscape will require adaptive strategies, real-time market intelligence, and a sharp focus on both domestic and international signals.