Europe's Milk Production Slowdown Is Tightening Global Dairy Supply

EU milk production growth has dropped from about 5.1% to roughly 0.8% within a few months, the sharpest slowdown among the world's major dairy exporters. Consequently, Europe has gone from a key driver of a record global supply expansion to the region where that expansion is fading fastest. Lower milk prices, higher feed costs and adverse summer weather have all weighed on European dairy farms at the same time. For dairy buyers and processors, that shift is tightening global supply at a moment when import demand remains exceptionally strong.

Nate Donnay, Director of Dairy Market Insight at StoneX, has analyzed U.S. and international dairy markets for two decades, working with farms, processors, food companies, distributors and lenders across the dairy supply chain. He tracks global milk supply, dairy trade flows and price risk across the major exporting regions, from the European Union and the United States to New Zealand.

Key Themes from the Discussion

• EU-27 and UK milk production growth has fallen from about 5.1% to roughly 0.8%.
• Lower milk prices, higher feed costs and adverse summer weather are slowing European dairy output.
• Global dairy imports outside China are up 8.3% over 12 months, with signs of stockpiling.

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EU Milk Production Slows Fastest Among Major Dairy Exporters

Milk production growth across the European Union's 27 member states and the United Kingdom has fallen from about 5.1% to roughly 0.8%, the steepest deceleration of any major dairy exporting region. The slowdown follows a supply surge that pushed combined exporter growth above 5%. "We've gone through a historic expansion in milk production across the major dairy exporting regions," Donnay says, adding that combined growth has now cooled to less than 2%. Europe is giving back that expansion faster than any other region, which means its contribution to global supply growth is shrinking first.

Feed Costs and Summer Weather Push European Dairy Output Lower

"That very strong milk production growth has pushed down milk prices," Donnay explains, "We've seen feed costs step higher and we've had some adverse weather, particularly in Europe." European Union dairy farms are absorbing all three pressures at once, specifically weaker milk prices, rising feed bills and adverse weather. Each one on its own would slow output, but together they explain why Europe is taking the biggest hit among the major exporters. As a result, the combined pressure is showing up directly in European milk production.

Europe's Milk Slowdown Contrasts With U.S. Herd Growth

U.S. milk production growth has eased from more than 5% to 2.8%, a far milder slowdown than Europe's because the U.S. dairy herd has expanded sharply. According to Donnay, that larger herd "probably means that U.S. milk production growth will stay above 2%," still well below the pace of the past year. New Zealand's season has started well, but El Niño weather is the main concern later on. Donnay notes that "production growth has slowed down across the major dairy exporters, and there's some risk that it slows down even further depending on how the weather turns out." For global buyers, Europe's retreat leaves the U.S. carrying more of the supply growth, with New Zealand's weather as the wild card.

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--- Written by Frédéric Guétin, StoneX Media Producer

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