October 14, 2016


Rabobank report: Markets tightening amid falling milk supply



Global milk production is tightening quickly and surplus for exports has reduced sharply in the face of firm domestic demand, Rabobank's global dairy report for the third quarter said.


"At a time when farmers will struggle to re-inflate production, and stocks are unlikely to be released to the market quickly, prices are rising in markets and at the farm gate," the report said, adding the price recovery "is driven by falling supply rather than demand".


"Price increases will be limited by continued weak global demand and significant stock overhang", the Rabobank Global Dairy Quarterly Q3 2016 said.


It said global milk production was falling faster than expected due to "difficult conditions and low to negative farm margins". At the same time, it added, demand for dairy products, particularly butter and cheese, has remained strong in the US, as well as strengthened in Europe.


"Combined, the effect has been an even more dramatic reduction in surpluses available for export onto global markets than we predicted just a quarter ago." said Kevin Bellamy, Rabobank Global Dairy Strategist. "Export surpluses will reduce year-on-year by over 3.4 million tonnes in the second half of 2016, more than at any time since the global financial crisis—with a further 2.5 million tonnes reduction due in 2017."


Following are other key highlights of the Rabobank third-quarter report:


-- Farm-gate prices are rising in most export markets but for a variety of reasons farmers will struggle to grow production.


-- Production in the EU may be further reduced due to subsidies designed to reduce supply.


-- The New Zealand season continues to improve following a mixed start due to high winter rainfall in key production regions.


-- Higher levels of imports by China will continue, but will be driven more by reducing supplies than rising demand.


-- Global stocks continue to be of concern-stocks are currently estimated to be 6.7million tonnes above normal levels.