March 21, 2012

The initial months of this year witnessed world dairy prices plunging between 3% to 8% across the complex, extending the run of gradual price softening to a year, according to Rabobank Dairy Quarterly.

Unusually good weather across most regions exacerbated the impact of high farmgate milk prices, driving supply growth too fast for battered western consumers to soak up, even with support from solid international demand.

Q2 is likely to see further downward pressure on world prices. Expected declines in farmgate prices will come too late to slow production growth much through the Northern Hemisphere spring. Demand will remain compromised by weak underlying economic conditions and only modest price relief for consumers.

Fundamentals should begin to rebalance towards the second half, though there is a risk of only weak price support at that stage, given the prospect of significant stock accumulation in coming months if there is a strong Northern Hemisphere supply peak.

In New Zealand, buoyed by exceptional growth conditions, farm expansions and high milk prices - milk production has continued to outstrip prior year levels by a long way. Rabobank expects milk supply to be up 4% for the first half of 2012.