Farmgate milk prices will depend on consumer demand strengthening through the second half of 2024, Rabobank has insisted.

The bank’s latest global dairy market review states that the recovery in commodity prices stalled in the second quarter, although the outlook for the year remained largely positive.

Rabobank blames the slowing market recovery on weaker consumer demand and reduced Chinese imports.

However, it maintains that the key consideration for the remainder of the year was whether consumer demand could bounce back to support commodity prices.

“Can demand strengthen into [the second half of] 2024 and support the global market? That will be the crucial question for farmgate milk prices in the coming months as the supply engine continues advancing slowly,” Rabobank states.

“While most economies are expected to avoid a recession this year, the reality is that economic growth remains low and high interest rates are a burden for both companies and individuals,” it points out.

Cautious spending

“Consumers in Europe have been cautious with their spending and resistant to higher prices, leading us to expect flat demand in 2024 compared to 2023,” the report worryingly predicts.

A cut to interest rates is not expected before the second half of the year, the banks states. This will restrict the ability of both processors and farmers to restructure loans.

However, on a positive note, the report expects input prices to hold steady or slide back slightly, thereby supporting farmer margins.

In terms of commodity performance, Rabobank expects cheese and butter to continue to outperform powders.

“Demand for cheese and butter has remained firm in recent months,” the report states.

In contrast, demand for powders has taken a serious hit in China and this is continuing to keep downward pressure on prices.

Rabobank forecasts that increased domestic production in China will result in an 8% reduction in net dairy imports compared with 2023, with purchases of skim milk powder dropping by 20% to 30%.