April 7, 2016

Rabobank: Slowing milk production, low demand as low prices linger

The current cycle of low milk prices is expected to persist this year, with upward pressure on prices starting only by yearend, when stock build-up slows and excess stocks are depleted, according to agri lender Rabobank's first dairy quarterly report.

The report said production growth in the world's milk production regions has continued to slow.

"Looking forward, the news is by no means all bad for the dairy industry", said Kevin Bellamy, Rabobank's global dairy strategist. "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."

Rabobank said that this year it expects slowing production growth to be matched by slow but steady consumption growth in most main export regions.

Since the end of quotas, however, milk production in the EU has increased to around 4 billion litres (up 3.4% on same period in the previous year) partly due to a weak euro, which facilitated strong export growth, AHDB Dairy noted.

The dairy division of the UK's Agriculture & Horticulture Development Board said EU milk production is seen to moderate, keeping the pressure on markets.

Moreover, it added, developments in China suggest an increase in import demand next year.

"The drop in domestically available supplies, along with high domestic farmgate and wholesale prices, could see China's stocks begin to reduce. If this is the case, then the county's import demand may grow through the year, helping to support global dairy prices", AHDB Dairy said.