Still more milk than market, says Rabobank
The world is still producing more milk than the market currently needs. This imbalance is unlikely to be substantially corrected in the second half of 2015, according to the Rabobank Dairy Quarterly. “The seeds of an eventual price recovery are now being planted, with producers and consumers finally getting the signal that the world has too much milk and starting to respond to that. But the price recovery itself is unlikely to emerge till late 2015 at best, ensuring a difficult period for many of the world’s producers,” says Tim Hunt, Rabobank global dairy strategist.
The sharp rally in international dairy prices in the first quarter was reversed in the second, with prices falling 20%-30% in the three months to mid-June. While market fundamentals never appeared to support the first quarter rally, fundamentals also deteriorated through the second quarter.
That being said, production in key export regions again rose above prior years in April as weather improved and EU quotas were removed, enabling producers to respond to what remained profitable prices in many regions. In the face of ongoing weakness in China and Russia, other buyers stepped in to take most of this product, though buy-side stocks are now large and supply-side stocks are also showing signs of growing.
Rabobank expects that the deterioration of market fundamentals will push back the recovery phase for international prices by at least a quarter. US dollar prices will also likely remain depressed in international trade through most of the second half 2015, as supply growth continues to outstrip demand as China continues to rebalance and buyers end their stock build programs.
Prices are expected to enter a recovery phase in late 2015/early 2016, after a period of slow production growth coincides with the stabilization of Chinese imports and improved consumer demand created by a period of lower retail pricing and ongoing income growth. The rate of price recovery will initially be dampened by the need to work through excess stock, before it gains greater momentum later in the year.