We bring you the key highlights from StoneX’s recent global markets webinar – including insights on Europe, the US, China and New Zealand.
“We had this sharp rise in dairy prices in Europe and the US in the middle part of the year. Even with the pull-back that we’ve seen since then, we still have generally decent dairy prices and milk prices relative to where feed costs are,” said Nate Donnay, director of dairy market insights at StoneX.
“And even with Oceania, where we didn’t get a big spike higher in spot pricing, once you convert that pricing in US dollars back to New Zealand dollars, the payout for New Zealand farmers looks very, very good as well.
“So we have good profitability across the major dairy exporters. And if the weather and animal disease allows, we should see good milk production growth moving forward.”
But would demand be strong enough to absorb the growing global supply without pushing prices dramatically lower? Here’s the run-down.
US
Gross margins for US dairy farmers have peaked but remain favorable. Dairy prices have come off their highs and the upcoming changes to the federal order pricing system are expected to shift milk prices further down. Meanwhile, feed costs have nudged upwards in recent months.
According to the latest ERS dairy market outlook report, adjusted 2025 price forecasts include: Cheddar cheese $1.800 (-9.5 cents), NDM $1.300 (+4.0 cents), dry whey $0.595 (+7.5 cents), and butter $2.685 (-7.0 cents). These price adjustments have led to a decrease in the 2025 Class III milk price forecast to $18.80 per cwt and an increase in the 2025 Class IV milk price forecast to $20.40 per cwt. The 2025 all-milk price forecast has been lowered to $22.55 per cwt.
Data supporting a likely increase in US milk production includes the expansion of the dairy herd, up by 46,000 head since July 2024; an increase of around 0.5% over the course of 5 months. Donnay said herd expansion could contribute additional 0.5%-1% growth in US milk production.
The impact of H5N1 bird flu – which has contributed to California’s lowest milk deliveries in 20 years and cost dairy farmers in the state millions in milk losses – will be closely watched.
California is the largest US dairy-producing state and has been the worst-hit by the disease, which has affected the vast majority of herds. Since the state produces 20% of US milk, a decline of nearly 10% would knock off 2% of the overall US milk supply, the analyst explained.
However, other states have not suffered the same level of decline in production. According to the analyst, across Texas, Colorado and Idaho, production dipped by up to 2.5% per cow on average. The data shows that production typically declines for 2-3 months after the virus is detected and then bounces back from the 4th month onwards.
It’s unclear why the production has suffered in nearly double-digit terms, Donnay said, but hotter average temperatures – of around 55F on average according to historical data for August through October, versus 35-82F across Texas, Idaho and Colorado from March through June – could be why California’s milk production has recorded a significantly larger drop-off in production. Likewise, getting back to normal levels there could take a while, Donnay suggested – but the overall picture for US production is positive.
New Zealand
In New Zealand, the milk price remains favorable and at NZ$10 per kg milk solids and could herald record payouts for dairies. But costs remain elevated, which could impact margins. “It’s going to be close,” Donnay said, “but overall, financially, New Zealand farmers are looking good.”
Weather conditions have been generally favorable, though a dry weather spell in December has affected pasture growth and may have some impact on production, Donnay predicted. “In the season to date, milk solids production is up 4.4% and the expectation is by the time we get to the end of this season, total production is only going to be up in the range of 2-3%,” he said.
Europe
The impacts of foot and mouth disease and blue tongue in Europe will be closely watched, according to John Lancaster, StoneX head of EU dairy consulting.
The last significant blue tongue outbreak in Europe was in 2001, he explained, which mainly impacted the UK, Ireland and the Netherlands. (The UK has now pre-emptively moved to ban cattle imports from Germany).
Back then, around 6 million animals were slaughtered in the UK, amounting to around 7% of cattle and 14% of sheep.
Smaller outbreaks have taken place since, notably in 2008 in the UK, but these had been quickly contained.
“The headline piece is we’ve had an outbreak in Germany, so far there’s only those three animals that have a cause,” he explained.
“Right now, we’re very early stages. Over the next couple of days, we’ll get a lot more information on what’s happening and hopefully we don’t see any more transmission.
“On the worst-case scenario, the impact on milk production in Europe would be pretty significant; and best-case, there will be pretty much zero impact,” he said.
Regarding blue tongue, the virus doesn’t spread easily below 17C, he said. The virus typically thrives in warmer seasons such as spring, and the previous year’s impact is still being felt in countries such as Germany.
As for milk production in Europe, feed costs have remained unchanged or slightly weakened since October 2024 for the main feed inputs i.e. wheat, corn, soymeal. Gas and electricity too haven’t seen price changes recently; general inflation has slowed, and fertilizer costs have rebounded after a short-term decline.
The UK has enjoyed ‘exceptionally strong’ production throughout the autumn, he added. “The majority of this is due to shift in calving patterns by UK farmers who have been incentivised to use more winter milk. With this incentivisation to use more milk and shift calving patterns as well as the relatively good milk prices and the relative weather conditions during the end of Q3 and Q4 have combined to give a strong collection for the UK.”
Looking at the individual commodity products, butter has moved up significantly, with Europe’s stock levels being very low; but the expected increase in milk production is likely to alleviate some of the pressures on stock levels, he added.
Meanwhile, EU SMP price has remained stable since October 2024; whey has strengthened, and WMP is projected to stay above the past 3-year average; with cheese prices also looking strong.
China
StoneX dairy analyst Lu Shi highlighted that farm margins have continued to weaken in 2024, with the first signs of reduced milk production hitting in mid-October 2024, with a 5% YoY decrease in milk production in Q3. According to StoneX research, the dairy cow herd has also shrunk by around 3%.
“We assume the production will keep the same as this year, then probably in 2025, we’ll see further milk production decrease over year 2024,” Shi said.
The reduced domestic milk production could be good news for the rest of the global marketplace.
Consumption meanwhile is expected to be flat to slightly negative, she added, due to weak consumer confidence.
“With less domestic milk production and also lower stock, but also weaker consumption, we expect the total milk import demand in 2025 just up by probably 2%, is quite reasonable.”
As for imports, weak demand is likely to hold back any potential surge, Donnay said.
“Production is dropping faster than consumption is and that that should be supportive for imports overall.
“But we’re still faced with this situation of weak demand that’s going to hold back any potential big surge in imports.
“If we could turn around Chinese imports from consistent declines to at least flat, it does become supportive for the market.”