A Rabobank perspective on the world’s dairy markets

The Agricultural Science Association ConferenceRabobank’s Matthew Johnson told this year’s Agricultural Science Association (ASA) Conference that international dairy prices peaked at record levels in April, just 10 months after the last market trough.

Although the market fell back in mid-June, with prices falling 10 per cent to 12 per cent, they remain exceptionally high by historic standards.

“Seldom has a rally in international markets appeared so supply-side driven as this one. A loss of momentum in milk production growth was expected following an unattractive milk-to-feed cost ratio in late 2012, but this has been exacerbated by atrocious weather in key growing areas in the first half of 2013. In the Northern Hemisphere a cold and wet winter was followed by a late arriving spring, while Oceania saw a summer drought,” he added

The Rabobank representative went on to confirm that milk production fell by 2.5 per cent in March then 4.1 per cent in April in the “Big Seven” export regions of the world – the EU, US, New Zealand, Australia, Argentina, Brazil and Uruguay. This is around four times the rate of contraction seen in the aftermath of the global financial crisis.

To make matters worse, battered by adverse weather and poor margins, Russian production fell at a similar rate during the same period, while Chinese production appears to have stagnated at best. This shorted supply in the world’s two largest import regions and sent them scurrying to the international market to top up just as exportable supply dried up. Many other importers were squeezed out of the market, with prices leaping to record levels to ration available supply.

“Dairy commodity prices may well start t decline over the coming months,” Johnson added. “However, with the relatively low level of stocks worldwide, the market has been left waiting for the supply response to improved prices.”

He concluded: “With a substantial reduction in commodity feed prices expected when Northern Hemisphere crops are harvested in fall, Rabobank expects margins to be positive in most regions by quarter four this year. With only a small improvement expected in demand conditions in the EU and US markets in the second half of the year, pricing will be heavily influenced by the response of milk producers to these improved margins and the appetite of importers to soak up increased volumes. In Rabobank’s view, this is likely to look more like a deflating than a puncturing of international prices.”

Related: The Agricultural Science Association Annual Conference

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