Rabobank Global Dairy Quarterly Q3 2018: Step by Step

Combined year-on-year milk supply growth across the Big 7 exporters (the EU, the US, New Zealand, Australia, Brazil, Argentina, and Uruguay) slowed during Q3 2018, as can be read in the latest RaboResearch dairy report “Dairy Quarterly Q3 2018: Step by Step”.


The slowdown in Big 7 milk production growth in Q2 2018, at just 1% YOY, has trickled through to Q3 2018. Hot and dry weather has been shrivelling pastures in Australia, while drought conditions in parts of northern and western Europe have reduced milk volumes. The Brazilian truckers’ strike earlier in the year curbed milk supply growth, while expensive feed could now start to bite Argentine production. US milk supply growth also continues to track below historical averages. While the onset of the New Zealand season has defied the slowing year-on-year global milk production trend, estimated flows for the Big 7 during Q3 2018 are for just 0.4% YOY – the lowest since 2016.

Lower milk production from drought-impacted areas in the northern hemisphere is at odds with a strong start to the New Zealand milk production season. Global dairy commodity markets are mixed, with variable results across regions and products. Most Oceania-origin products have lost ground as buyers keenly await the full extent of the favourable New Zealand spring flush, creating a lack of buyer urgency.

“Ultimately, however, milk supply will grow only modestly year-on-year during the coming 12 months, driven by tight margins on-farm and lingering effects of adverse weather,” according to Emma Higgins, Dairy Analyst. “Surplus dairy available for export will significantly tighten for an extended period, which will provide some upside to pricing across the dairy complex.”

With globally-rising forage costs, farmgate milk prices will need to move higher to offset the cost impact and improve farmer margins in order to support milk production growth.

Chinese dairy product imports are expected to increase in 2H 2018, which will help absorb some of the milk supply growth from New Zealand. The full extent of the trade war fall in terms of trade and currency impacts is likely to play out in 2019 and beyond. A key risk is the strong US dollar, which will reduce the purchasing power of key importing regions.

Click here to download the report