Dairy prices remain on course to rise in the first half of 2017 - Rabobank

Global dairy prices remain on course to increase in the first half (H1) of 2017, the latest Rabobank Global Dairy Quarterly (Q2) has found.

While Rabobank still forecasts prices to rise in 2017, Kevin Bellamy Dairy Analyst with Rabobank has said that these risk being dampened by continuing weak demand due to low oil prices, trade bans and lack of affordability in emerging markets.

“As a result, the light at the end of the tunnel remains undimmed,” he said.

According to the report, global deliveries of milk have started to fall, while dairy markets are showing only modest demand growth.

Despite upward movement in prices at the end of the second quarter, it expects growing inventories will continue to overhang the market as the world works its way through the current glut.

In the second quarter, the world’s farmers started to react to protracted lower farmgate prices by slowing growth in production – as anticipated, production will start to fall in response to low farmgate prices, leading to sharp reductions in export surpluses, the report found.

However, it said that despite higher buying from China in the first half of the year, poor economic performance, low oil prices and geopolitics continue to weaken demand in many regions.

Global stocks continue to increase, with current stocks estimated to stand at 6.4m tonnes higher than the five-year average in liquid milk equivalent (LME) terms, which Rabobank said represents around 7.5% of annual trade.

Rabobank continues to forecast that prices will start to increase in 1H 2017, but again it warns that high levels of stock and weak global demand can threaten this.

In addition, the report found that the decision of Britain to leave the EU could skew global competition if as forecast the euro weakens increasing the competitiveness of European products in export markets.

Little change in prices at the latest Global Dairy Trade auction

Meanwhile at this week’s Global Dairy Trade auction, prices more of less held steady on the previous auction, posting a marginal 0.4% fall.

The average price paid for dairy product at today’s event stood at US$2,345/MT with 32,000t of product traded.

Most dairy market commentators continue to be of the view that there will be no sustained increase until there was a clear indication about increased demand in world markets and some sign of a drop off in supply, particularly out of the EU.