Dairy Buyers Are Reading Shipping Lanes as Closely as Milk Output

Global dairy trade moves through a short list of sea lanes, and conflicts in the Persian Gulf, the Red Sea and the Black Sea are lifting transit times and shipping costs across all of them. Dairy shipping risk has become a factor in purchase timing even though the direct cost impact on dairy markets remains small, because buyers moving product internationally are pricing the chance that routes get worse rather than better. That is happening while milk production growth runs above trend in the Northern Hemisphere and Southern Hemisphere volumes climb into the seasonal peak, which is not the setup that usually produces firm dairy prices. The number worth watching is not the freight invoice but the behavior it is changing.

Nate Donnay is Director of Dairy Market Insight at StoneX and has worked across U.S. and international dairy markets since 2005. He tracks global milk supply and dairy trade flows, including the shipping routes, feed logistics and freight costs that underpin them.

Key Themes from the Discussion

• Conflicts in the Persian Gulf, the Red Sea and the Black Sea raise energy, fertilizer and feed costs.
• Low European river levels force partial barge loading, driving up the cost of moving feed and fertilizer.
• Logistics disruption has a minor direct impact on dairy markets but changes when buyers commit to purchases.

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Conflict Zones Raise Dairy Transit Times and Shipping Costs

"If you're a buyer who has to move dairy products around the world, you're certainly thinking about these risks", says Donnay, and that thinking is now doing more work than the freight bill itself. Active conflicts in the Persian Gulf, the Red Sea and the Black Sea are all feeding through to energy, fertilizer and feed markets at the same time, and Donnay is direct about the shipping consequence, noting that "we have the current conflicts which are increasing transit times and raising shipping costs". The direct impact on dairy markets from these logistics problems remains minor, which is precisely why it gets underweighted in supply and demand analysis. Its real effect shows up in timing, because a buyer who cannot rule out further deterioration has a reason to secure product sooner rather than wait for a route to reopen.

European River Levels Lift Dairy Feed and Fertilizer Costs

Drought in Europe is hitting dairy farm economics through the feed supply chain rather than through the milk tank. The impact on crops from hot and dry conditions is the visible part, but the inland waterway system compounds it. According to Donnay, "drought means water levels in major European rivers are low. Barges could only be partially loaded, and that's driving up the cost of moving feed and fertilizer around the continent". Consequently, European producers face a squeeze from both sides of the same weather event, since "many dairy farmers will have to buy supplemental feed to make up for shortfalls on their farms, at a time when feed prices are rising", a cost pressure that outlasts the short-term dent to milk collections.

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--- Written by Gus Farrow, Senior Manager, StoneX Media

--- Expert: Nate Donnay, Director of Dairy Market Insight