Rabobank says dairy prices will decline

The latest quarterly global dairy outlook from Rabobank says prices softened considerably during the second quarter of the year. Increasing milk production in exporting regions combined with an easing of forward purchasing by China causing the decline. The report says after a period of aggressive buying, China has increased domestic production while sales have weakened causing excess inventories of dairy products.

Rabobank notes that U.S. milk prices have remained “at a significant premium to the world market” through mid-June but are expected to “fall faster than elsewhere’ in the second half of the year as exports decline and milk production increases.

The outlook calls for milk production growth to slow considerably in the second half of this year as lower prices are passed on to producers. However, global consumption will slowly increase thanks to higher incomes, employment growth and falling retail prices. That improving demand will lead to an upswing in prices by the end of 2014 or early 2015.

 

A look at production around the world:

 

  • EU: 2014 has seen an extraordinary increase in EU milk production. Margins were high enough for many to simply choose to produce over quota limits, with production in the EU up 5.6% on Q2 last year. Growth is expected to continue outpacing domestic market consumption during 2H, although exportable surpluses are anticipated to slow considerably.
  • US: US wholesale prices have slipped considerably less than those in the external market. They are in many cases at a significant premium to the world market in mid June and are expected to fall faster than elsewhere through 2H as exports fall back and domestic milk production picks up.
  • New Zealand: New Zealand production was up 17.5% versus the same period in drought-impacted 2013. Export volumes are expected to trend well above the previous year through Q2 and Q3 2014 due to higher milk flows providing additional volume to be shipped during the seasonal trough versus 2013.
  • Australia: The outlook for 2014/15 remains broadly positive for most dairying regions. While early price signals confirm southern export producers will face lower farmgate pricing in 2014/15 due to lower commodity prices, the market should remain supportive of investment.
  • Brazil: Brazilian milk production declined seasonally from its December peak, as usual, but much more slowly than last year. There is likely to be little in the way of imports into the Brazilian market in 2H, while exporters will be trying to find a home for Brazilian production in the region and beyond.
  • Argentina: Argentine milk production is expected to continue to fall below prior year levels in the second half of 2014. While margins over feed remain positive, other costs are subject to rapid inflation. In addition, a looming El Niño event is likely to bring above average rainfall from spring onwards, creating further problems on farm.
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