DairyCo is reporting that in its latest quarterly report Rabobank has suggested that there will be a prolonged period of low dairy wholesale prices in order to help balance the current surplus of product on the global market.
As supply has continued to grow in key exporting regions since the middle of 2013, demand eased in the early part of 2014, leading to the downward trend in wholesale prices observed since the start of the year. Due to the lag between the fall in wholesale prices and those at the farmgate level, combined with easing feed prices, many farmers in the EU and US were still able to achieve decent margins and have maintained high levels of production into recent months.
Prices on the international market are now below the level Rabobank believes is sustainable in the medium term, suggesting that a bottom appears to have been reached. However, price recovery will take some time due to lags in reactions in supply and demand to the price signals, leading to the expectation that commodity prices will only return to an upward trend in Q3 2015. Milk supply growth in the big 7 export regions is forecast to slow to 1.6% in the first half of 2015, from the 5.1% year-on-year growth seen in H1 2015. This will help price recovery, but it relies on growth in China’s imports, as well as the removal of the Russian ban.
Meanwhile, Ulster Farmers’ Union President Ian Marshall is pointing to the growing expectation that the Russian ban on EU food imports may ease over the coming months. But according to the Co Armagh farmer, this should not be taken as a signal that the EU’s milk industry is off the hook. Speaking from this week’s COPA Congress of European Farmers in Brussels, he added.
“I am getting a sense that some form of political resolution between the EU and Russia is in the offing. And this will have a very positive knock on effect where the trading of food products is concerned.
“But the challenges that still lie ahead for the dairy sector remain formidable. The latest statistics confirm that global milk output has increased by 5% year-on year, while demand has only risen by 2.5%. The reality is that there is an international oversupply of milk at the present time.