Home > Global dairy price recovery likely after six months

Global dairy price recovery likely after six months

Supplier News

The Dairy Quarterly Q2 report by agribusiness banking specialist Rabobank indicates that dairy prices are unlikely to improve for at least another six months.

According to Rabobank’s Dairy Quarterly Q2, improved milk production has led to a fall in prices in export regions combined with the easing of forward purchasing by China. These mechanisms freed more product for other buyers and reduced the need to ration demand with international dairy commodity prices falling 10% to 20% in the three months to mid-June.

Rabobank analyst Tim Hunt explains that the pull back in Chinese purchasing has been particularly significant, indicating that the Chinese industry has accumulated excess inventories after a period of vigorous buying combined with improved local milk production and weaker local sales.

Milk production growth will slow considerably in the second half of 2014 as lower prices are passed on to producers, weather normalises and comparables become tougher to exceed. Consumption in export regions will also slowly improve on the back of higher incomes, employment growth and falling retail prices.

Hunt believes these forces will gradually tighten up the market through 2014; however, very little improvement in prices can be expected until late 2014 or early 2015, as China works through its accumulated stocks and the world continues to consume the excess milk produced in the first half of the year.

Interestingly, the developing El Nino event has the potential to generate unusually dry conditions in South East Australia and excessive rainfall in Argentina, reducing milk production in both of these export regions.

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.

The 2014/15 outlook for Australia 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 reduced commodity prices, the market should remain supportive of investment. 

Newsletter sign-up

The latest products and news delivered to your inbox