October 3, 2007

Dairy boom may come to an end: Rabobank

Global dairy prices is expected to ease early next year as there is a chance of a sudden fall, according to a report prepared by agricultural banking institution Rabobank.

In the report " Is Global Boom Sustainable?", the bank says when the market begins to re-balance the possibility of a sharp correction cannot be discounted.

Only about 7 percent of world milk production is traded across borders and as demand and supply are rising fast in self-sufficient countries such as India, China and Brazil, production is expected to fall further.

"We think the market will re-balance in 2008, particularly when we get back into the northern hemisphere season around March or April," said report co-author and Rabobank analyst Hayley Moynihan.

The European Union had the capacity to increase supply by around three billion litres next season, she said.

The report lists other factors that could cause dairy prices to fall even more sharply, including a faster-than-expected fall in international grain prices; slower global economic growth; a slowdown in growth in Brazil, Argentina and Ukraine, which would reduce domestic consumption growth and free more for export; and early relaxation of the EU quota system accompanied by a stronger-than-expected supply response from EU farmers.