April 12, 2017
Short-term volatility in the dairy sector is predicted, fuelled by unstable outlook for currency changes and production and stock levels.
While butter prices continue to trade at near-record levels, skimmed milk powder (SMP) prices continue to fall, according to the Rabobank's first quarter report on the dairy sector.
"The spread between the elevated butter prices and skimmed milk powder prices…has never been bigger and continues to widen, although it's nearing its climax", said Kevin Bellamy, Rabobank global dairy strategist.
"As farmers slowly respond to higher farmgate prices, production will continue to rise, bringing more protein", he added.
The Rabobank report also predicted that the market will again look to the European Commission (EC) to support European SMP prices as "it now seems all but certain that intervention buying will be needed again in 2017".
Milk production levels recover
It added that the EC may find a destination for the aged SMP stocks, easing the market overhang. It warned, though, that any solution to reducing high public stocks would be difficult, as it has to be non-market-distorting.
Rabobank said that as anticipated, the upward movement of prices has run its course, as milk production levels start to recover against still weak demand.
Rabobank also sees global butter prices remaining firm as the year progresses. "They will be needed to maintain margins due to the persistent low value of skimmed milk, which is likely to remain weak, but stable, supported by limited stocks in Oceania and intervention buying in Europe", it said.
Cheese prices are also seen to remain stable, given the continued growth in export markets, as well as whole milk powder prices, supported by limited suppliers and limited available stocks.