World dairy prices to remain under pressure until 2017 – Rabobank

Global dairy markets are to remain weak throughout 2016, according to Rabobank, but that the outlook remains positive as consumption continues to rise.

In its quarterly dairy report, it says that global dairy commodity US Dollar prices have continued to stumble along a market floor largely determined by the level of EU intervention support.

Milk production has continued to slow in the EU and New Zealand as prices remain low.

However, Kevin Bellamy, Rabobank’s Global Dairy Strategist, has said that looking forward, the news is by no means all bad for the dairy industry.

With the exception of Brazil – gripped by the worst recession in a generation – Rabobank sees dairy consumption continuing to grow in Asia, as well as in the US and EU.

The report goes on to say that throughout 2016, slowing production growth will be matched by slow, but steady consumption growth in most main export regions.

Meanwhile, in Europe, Rabobank anticipates that low farmgate prices will mean production growth will slow as farmers focus more on cost-saving than expansion.

However, the dairy quarterly report found that while European production growth will moderate, production levels will not fall, requiring the world market to find a new pricing balance.

Down under, the 2015/16 season production in New Zealand will be higher than expected, which Rabobank attributes to increased summer rainfall.

The report found that current season will be mostly break-even for Australian producers, while margins will also be tight.

In the US, it is expected that farmgate prices are likely to move down in response to weakening trade balance and growth in inventories.

Worse-than-expected production in the second half of 2015 has led Rabobank to cut its China production forecast for 2016.

Contracting production levels are to continue in Argentina and Brazil, as very high feed costs keep farmers’ margins under intense pressure.