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Dairy Producers Not Out Of The Woods Yet

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Dairy Producers Not Out Of The Woods Yet

Dairy Producers Not Out Of The Woods Yet
March 26
09:54 2015

While the price of dairy commodities have rallied from their January lows in recent months, a report released by Rabobank highlights that this price surge is hard to justify based on current market fundamentals. Rabobank believes that suppliers are not out of the woods yet.

“We have passed through the worst for dairy market fundamentals, but things are not likely to be as tight through the middle of the year as the market is currently factoring in,” says Rabobank’s analyst Tim Hunt.

Global prices remained lifeless throughout the first half of Q1, before a surprisingly vigorous bounce starting in the middle of February. By the middle of March, whole milk powder (WMP) prices were 42% up on mid-December levels in US dollar FOB Oceania trade, with butter and skim milk powder (SMP) up 20%, while cheese remained largely unmoved.

From the supply side, New Zealand experienced a dry period in February and March, while tighter margins and penalties for exceeding quotas brought an end to a wave of milk supply growth in the European Union. In contrast to most export regions of the world, the three months through January saw continued strong growth of milk production in the US. In the meantime, China and Russia are leading the first demand driven contraction in international trade since the 2009 financial crisis.

In the nearer term, Rabobank foresees a likely loss of pricing as the market looks to deliver the signal to restrain production growth.

Tim Hunt adds: “As we progress further into 2015, supply growth will continue to slow, lower prices are expected to unlock more favourable consumption growth, and stronger buying elsewhere will help offset the weakness of China and Russia. This will gradually tighten the market and generate modest upward price pressure in 2H 2015.”

Most dairy farmers in key export regions are predicted to be back in the positive margin territory by Q4 this year.

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