EU dairy market to lose tension on more supplies

A double boost to supplies, of rising production and the release of European stocks, will cost the dairy market the "tension" which has doubled prices over the last year, Rabobank has warned.

The bank, noting the 15% "correction" in milk powder prices that auction results are factoring in, said that the "tide has turned for milk production".

Production from export regions rose in April for the first time in nine months, as revived dairy prices prompted farmers to lift production.

And supplies also look set to be boosted by the EU's decision to sell down 192,000 tonnes of skimmed milk powder and 25,000 tonnes of butter it has in stock, and which have not been earmarked for social programmes.

According to Rabobank, this reversal would ease the ongoing tension in the market, as strong pockets of demand met falling dairy production in major exporting countries. However, prices were unlikely to show a substantial drop, with growth in supplies likely to be slow.

Indeed, the shift represented a healthy rebalancing of a market that has been propped up since late 2009 in part by post-financial crisis distortions, Rabobank said.

Meanwhile, global dairy prices have doubled, halved then doubled again within the last four years, posing widely recognised planning problems for both farmers and milk buyers.

Rabobank said that one potential hiccup to this rosy scenario was a botched selldown of the EU inventories, which were built up through intervention buying during the dip in world prices.