December 29, 2016
Rabobank report: Dairy prices skyrocket amidst milk supply crunch
The year's second half saw milk supply from dairy export regions drop sharply by 2.6 million tonnes, causing global dairy prices to skyrocket, the latest dairy quarterly report from Rabobank said.
The agricultural lender's Rabobank Global Dairy Quarterly Q4 2016 report said milk volumes from Oceania (including New Zealand) and Europe were severely challenged as domestic demand in the latter and in the US continued to strengthen. The demand, the report added, reduced volumes available for export by 4.5 million tonnes in LME (liquid milk equivalent) terms. As a result, global dairy prices increased by over 45% in the second half.
The demand has also negated the need for further stock growth.
"Most of the domestic demand growth is for cheese and butter. Therefore, the spread in prices across the dairy complex stocks will remain wide, with demand for butterfat driving the market and surplus protein, including European stocks, weighing on the market", the report stated.
Kevin Bellamy, Rabobank global dairy strategist, also said, "Milk production around the world in 2H (second half) 2016 is in poor shape. Europe's production has tightened-not only due to low prices, but also in response to the efforts of the European subsidies, which—if farmers deliver on their commitments-should remove a million tonnes of milk from the market".
Poor production in Oceania
"Meanwhile, we've seen poor production in Oceania, with New Zealand missing last year's peak production levels by 6 percent", he added.
Rabobank said significant recovery of production and volumes available for export would be delayed until the second half of 2017, as the new Oceania season begins.
It said China would return to the international market, and predicted that its imports would rise 20%.
Moreover, prices across the dairy product matrix would diverge, driven by higher butterfat demand and surplus of protein stocks.
In its previous third-quarter report, Rabobank had similar findings that global milk production was tightening quickly and surplus for exports had reduced sharply in the face of firm domestic demand.