Dairy production, prices set to rebound in 2024, as butter sees ‘almost off the charts’ growth, Rabobank reports

“We are coming off of a 2023 that saw pretty low milk prices. It was a pretty challenging year for farmers. Margins and profitability were pretty elusive overall. Feed costs [were] still relatively elevated, [and] lower milk prices created a pretty tough on-farm situation. And then now, we're in a situation where milk production has subsequently declined not only in the US but in most key global regions, which includes the European Union, places like New Zealand, even into South America.”

Slumping production meets slumping demand for milk

Rabobank outlined the state of the global dairy market in the recent addition of its quarterly dairy report​, for which Fuess served as the lead author of the report with contributions from his colleagues.

The dairy market has seen lower production and milk demand, so “prices have been pretty range-bound sideways over the past few months,” Fuess said. The challenges in the dairy market will likely continue through the first quarter of 2024 and into Q2, he added.

In the US, the slumping supply of milk comes from the dairy herd size and milk per cow decreasing. The herd size shrunk by 76,000 cows in the last year, as farmers looked to replace low-milk-producing cows, and milk per cow has decreased by 0.3% in January 2024, while yields were up on average by 1% in 2023, Rabobank reported.

US dairy exports were down 5% in December 2023, and exports were down 7% for the full year, led by lower demand in Asian nations. However, one of the US' largest dairy buyers, Mexico, “had a very strong year in '23, importing primarily cheese and nonfat dry milk,” Fuess said.

In 2024, Rabobank expects “production to rebound,” growing by 0.5%, as demand recovers as well, he said. Positive macroeconomic factors like lower inflation might increase exports to China and other countries, he added.

“As demand slowly picks up, we expect a positive impact overall on prices moving forward this year, too. I want to caution or preface that with we don't expect a resurgence to the really high prices that we saw in 2022. We are not overly optimistic on these trends, but generally speaking, looking towards 2024, most dairy product prices, and milk prices in general, dairy attitudes are looking a little bit better into '24 than what we saw in 2023.”

He added, “All of these big macro trends that we have been dealing with over the past 12 to 18 months look a little bit better into 2024, which shapes our view on maybe some buyers in these countries will maybe step back into the market and kind of drive demand a little bit higher.”

Butter sees 'almost off the charts' growth

While consumer demand for fluid milk has declined for years, many shoppers are now eating more dairy from cheeses, yogurts, and butters, Fuess noted. 

“When we think of fluid milk demand — or drinking milk demand — that has been declining over many years now. But when we look at the category as a whole, we are eating a lot more of our products rather than drinking dairy products. And ... domestically speaking, total dairy demand does continue to climb on a year-to-year basis. So, things like cheese to add yogurt demand, all those things are more than compensating for the decline in fluid milk demand overall.”

The dairy market is expected to see continued strong demand for butter, which saw average US prices come in at $2.6294 per pound for January 2024, Rabobank stated. Consumer trends around healthy fats are also contributing to strong demand for butter, Fuess highlighted.

“Butter demand, both domestically and globally, just continues to be almost off the charts. We set in the US a record high butter price in '22. We exceeded that record high in 2023, and prices into the first quarter [of 2024] on butter are extremely firm, so an outlier to some of the price behavior that we see on everything else. Consumers continue to purchase it at grocery stores, [and] ... there remain trends that people are switching from the veggie oil or other products to butter only, and we just cannot seem to make enough.”

Despite lower milk production, cows are “producing record levels of milk fat,” but it’s not keeping up with consumer demand for butter, he said. 

He added, “Butter [is] in that category with nuts, pistachios, almonds, avocados, [and] all of those simple single ingredient or single products, and it continues to ride the wave of that changed perception overall on healthy fat.”