There may be no bounce back in international dairy prices until next year, according to Rabobank‘s dairy global strategist.

“We did say that prices should improve in the latter half of 2016, but as time goes on it becomes more difficult for us to see dairy prices react,” Netherlands-based Kevin Bellamy told

“I think everyone has become more bearish in the last month, as the demand situation has got a little bit weaker. A lot of people are saying the recovery may take place very late in 2016, or else may not happen at all [this year].

“We’ve got a team of 14 dairy analysts around the world at Rabobank’s Food & Agribusiness Research and Advisory and that team has certainly become more bearish in the last month,” he said.

Bellamy stressed that factors feeding dairy prices can change very quickly, but the correlation between low industrial commodity prices and low dairy prices does not augur well for dairy, as few economists are anticipating oil prices to noticeably lift this year.

Exchange Rates and Finding the ‘New Norm’

Kevin Bellamy, Rabobank’s Global Dairy Strategist

Kevin Bellamy, Rabobank’s Global Dairy Strategist

Bellamy said the key issue this year for European dairy farmers will be exchange rates.

“We’ve seen a lot more milk come out of Europe but we’ve been able to export it, thanks to the weakness of the euro against the dollar. So we haven’t seen stocks build-up or prices fall in the same way they have in New Zealand, for example.”

“It’s going to be a difficult year for dairy all around the world. As quotas were removed from European dairy farmers last year, they will still be trying to find the optimum production, which will take a couple of years until we reach a new norm.”

Bellamy said it may take until 2020 until Europe discovers the optimum dairy capacity of its land.

Russian Ruble Not Worth a Dime

Bellamy added that though Russia is out of the European market, its currency has depreciated to a level where the country is not going to be big buyer even if it did return in the foreseeable future.

“I think the ruble has depreciated to a level where their buying power would be quite low anyway. I think most people are discounting Russia as a buyer for the next couple of years. Also, take into account that their own domestic supply is increasing, and the dairy product they seek most is cheese.”

In addition, he said Russia had been a “fairly unreliable customer” before EU economic sanctions  were introduced in July 2014, as Russia has imposed comparable bans in the past on countries such as Germany, Netherlands and the Ukraine.

Bellamy is the former Executive Director of the Global Dairy Platform (GDP), a global consortium of over 60 companies with a collective turnover of over $100 billion annually.

He was also the Chief Executive Officer of the UK Milk Development Council for six years and served on a number of dairy-related boards, including the UK Dairy Council and the National Farmers Union Dairy Board.

Chinese Demand & the 2014 Stockpile

Bellamy said that demand on all products has been softening in China as its economy has slowed over the last couple of years.

“But we still see some growth in dairy there: about 2% increase in liquid milk, on the back of more discounting in the marketplace.”

He said the Chinese dairy inventory built-up significantly in early 2014 when buyers saw a constriction coming in supply.

“We had had terrible winter in Europe, a drought in the mid-west, a short drought in New Zealand at the end of the season and feed prices were high.

“So that spooked the Chinese into buying more. They’ve had about 200,000 tonnes of powder in storage, which is beginning to come down, but it’s about half that at the moment,” Bellamy said.

“China is about 85% self-sufficient in milk and they will continue to be a net importer of milk, even though they’ve been investing hugely in dairy in the country.”

Bellamy said China won’t become 100% self-sufficient in dairy, in part because imported products are considered premium, mostly down to food safety concerns from domestic product.

Will China’s Return Kick-Start Price Lift?

Bellamy said the view of Rabobank’s Food & Agribusiness Research and Advisory is that China will come back on to the world dairy market in the second half of this year.

But he stressed that a lift in international dairy prices is dependent on a number of factors, not just an increase in Chinese demand.

These factors include an expected lower milk output in New Zealand, which is already about 3% below last year’s curve. Bellamy estimates Fonterra’s output will be up to 10% lower this year than last year, though the dairy coop is estimating 7%.

“That will take about 1.5 billion litres off world supply.”

As for the US, “it really has an internally structured dairy market, rather than being export focused. But the strong dollar isn’t going to help them export much this year.”

Bellamy said butter prices has been keeping the US dairy market more buoyant than it otherwise would be, but that butter is a “bit of a bubble” at present. Its price should reduce “relatively soon,” which should bring down farmgate prices for milk in the US, possibly into negative territory.

This, in turn, would lead to a loss of production from the US market of up to half a billion litres, Bellamy concluded.