Today’s dairy market is global. In our latest episode of The Milk Check, we dive into the New Zealand and Oceania markets to understand how they may impact the U.S. dairy market. Join Jacoby and our two special guests Jo Bills, ag market analyst and director of global Insights at Ever.Ag, and Steve Spencer, managing Director at Ever.Ag as we dive into dairy.








Tight global supplies of skim milk powder and strong demand will likely keep prices high through 2025



New cheese plants in the U.S. market increase Class III supply and may drive cheese prices down and limit powder output, tightening global powder supply



New Zealand enjoys tariff-free access to the Chinese market, but China's economic woes have reduced dairy demand



Lower Chinese demand pushed New Zealand to focus on skim milk powder, butterfat, and cheese




And lots more information on the global dairy market and our predictions 2025. We have a positive outlook for dairy in 2025, but cheese may be our wild card.



Get the market scoop from the Jacoby team, including Ted Jacoby, III, CEO & President, Cheese, Butter & Dry Ingredients; Josh White, Vice President, Dairy Ingredients; and Diego Carvallo, Director of Dry Dairy Ingredient Trading.











Intro (with music):



Welcome to The Milk Check, a T.C. Jacoby & Company podcast where we share market insights and analysis with dairy farmers in mind.



Ted Jacoby, III (T3)



Hello, everybody, and welcome to The Milk Check. This month, we are excited to welcome special guests Joanne Bills and Steve Spencer from Freshagenda to share their thoughts on milk production and dairy demand in Asia, Oceania, and internationally for 2025. Joining us from the Jacoby team are Josh White and Diego Carvallo from our dairy ingredients team. Welcome, everybody, and thank you for joining us today.



Steve Spencer:



Thank you, Ted. It's great to be here. We enjoy these. We've done a few of these, so it's always good fun.



T3:



We're about to enter year two of China's tariff changes regarding New Zealand dairy products and how they are imported into China. For our audience, many of whom are dairy farmers here in the U.S., why don't you give us a quick overview of those changes? Then, we can discuss what that has meant for dairy markets in that region and how it affects dairy prices.



Steve:



In basic terms, New Zealand has tariff-free access to the Chinese market. That was preset for an extended period. They were on a slow rundown of tariffs over a long haul. A few years before that was due, they had a review, and it seemed to be that that was just a little period to push it out a bit longer, and that's in the rearview now. So, we're in a very tariff-free environment for New Zealand exports, which you'd think has freed them up to go wild. The only trouble is China's not a market that is allowing many people to go wild right now because that's come at the same time as China hitting a phase of the second wave after Covid; the second wave lockdowns were much harsher, much longer, much more damaging to the economy and so that's crippled demand for dairy in many parts of the market because spending, consumer spending has been depressed and many things are contributing to that right now and that's still a happening thing.



So, that has freed New Zealand up to grow its share of the market in skim milk, powder, cheese, and butterfat and they've certainly done that at a time when the import volumes are a lot lower. So, we've got to sit back and look at the overall trends in China. We think they're just off the bottom regarding those import trends, but New Zealand has certainly picked up share, and their exports to China are falling.



You could take the story of product by product because the products that China isn't producing or doesn't produce, skim milk, powder, butterfat, cheese, a small production of those, really the trade is probably following the pattern of demand we're seeing in that market. There have been some false starts, and some volumes pick up and go in slow again, so they're seeing lots of volatility in the trade over time and whole milk powder; it's about how much of a balance China's got, how much they're producing internally, what's happening to their milk use across all categories, and then what role do imports play in that. That's still a sad story. We have seen the whole milk powder trade over the last six months, but it is still 28% down year-on-year. New Zealand is exporting, and New Zealand has the dominant share of that.



T3:



Do you expect what's happening in China with their import volume? Is this a new normal? Do you think we will stay down here or end up closer to where we were four or five years ago or somewhere in the middle? What should our expectations be going forward for China?



Joanne Bills:



Yeah, I think, Ted, it will depend a lot on what happens with their internal production. We have seen good growth in milk production over several years, but more recently, that growth has stalled. Raw milk prices are well down, and there have been rumors talk of the government starting to take action to reduce cow numbers. They certainly did that in the pig herd. We haven't seen any follow-through in the dairy industry, but they're very focused on getting that internal Chinese dairy supply chain rebalanced and aligned with demand.



You would have to think that they'll still have some demand for, particularly as Steve said, the things that they don't produce internally. Butter demand has been surprisingly good, given what prices have done, and there's also been fairly steady growth in cheese. It's really hard with China I think, Ted, to know what normal is because we've had all these levels of normal over the years that there've been such a dominant force in dairy, but we probably won't get back to where we were in terms of whole milk powder demand and that's probably why Fonterra is very much about diversifying into other markets and products.



T3:



And that was where I was going when I was asking that question. We're dealing with a new normal when it comes to China and we're going to be exporting less to China globally, which means New Zealand may be increasing their market share, but they're increasing market share of a shrinking or at least a smaller market.



Joanne:



That's spot on.



T3:



New Zealand's dealing with this smaller import market in China for their products, even though they're increasing market share, they've got to find new places for their product.



Steve:



I think they're doing it with a brave face, Ted. I think they've done a good job. They've had some help. So, when the whole milk powder demand plummeted and charts and that are spectacular, I think they had to pivot towards skim and butter and hopefully build their cheese trade. That didn't happen in cheese, but so they've had to put that milk in a different uses. Around the same time, we had a few problems in South America, so their whole milk powder trade was helped. They were able to push things into markets, push product into markets where the South Americans couldn't supply, but now I think we're seeing a adjustment to say, "Yep, that's a market that isn't going to grow much from where it is in terms of our whole milk powder requirements." And now the focus for them is very much on protein, milk protein, high functional evaluating in that respect to use up skim solids.



Josh White:



Is that fair to say that during peak production there's a certain amount of whole milk powder that always has to be made? It's a shrinking amount it seems like every year, and we should expect it to continue to as we go into 2025, giving them more versatility as to where they can allocate the raw milk to in New Zealand. That being said, if China demands whole milk powder, they'll be quick and the obvious ones to respond.



Steve:



Yeah, they can flex, Josh. I think they can divert tankers literally. It's just which plant do they send certain tankers to when it really matters. I think the flex is still there. The hint about how they're going in terms of their total book and what they've got in front of them is the annual GDT forecasts they put out of their total almond powder trade on GDT is usually a good sign for where their overall production and demand is in their book, and that hasn't shifted much in this year. It shifted down a little. We think it's probably a little bit up on last year even, but the peak is much stronger this year and we'll come to that I'm sure, but that's a different dimension they happened to manage.



Josh:



So, before we shift to talk about supply across the board, maybe touch on a couple other interesting data points on the demand situation. How would you describe the rest of Southeast Asia and then you mentioned a bit more about South America. Are we forecasting or expecting South American situation to change from a demand standpoint much or is that really all supply driven?



Steve:



Yeah, let's start there first. So, the issues is how the America were about supply out of Argentina and Uruguay where their milk production really tanked down 10 or so percent for a period of time. The economies down there aren't great either, so their domestic consumption has been impaired. Looked okay for a while, but that's now coming back. So, they are putting more into whole milk powder now, but the whole economy is trashed. Input costs are very high for farmers, they were having to struggle through on very thin margins and difficult cash flow, different currency situation. I think it's improving now. Production is back on par, year-on-year, so that is starting to ride itself. We talked about the China demand thing first. We talked about the supply side, supply chain balance, but the demand side and China's still got, we think, a long way to go, Josh, in getting back to some sense of growth.



We're certainly seeing it in a few little sectors,