December 21, 2014

 

Low prices to continue hounding dairy sector, says Rabobank

  

 

The international dairy markets continue to suffer from low prices as a consequence of "exceptional" milk production growth in export regions and lower purchases from China and Russia, agricultural lender Rabobank said in its fourth-quarter dairy report.

 

The report, prepared by Rabobank's Food & Agribusiness Research and Advisory Group, said the low prices have, however, succeeded in clearing huge volumes, with trade growth up 15% year on year.

 

Prices have fallen 30-50% from their peak, encouraging buying from second- and-third- tier importers such as Southeast Asia, the Middle East and North Africa, to clear the market, the quarterly report said.

 

Rabobank analyst Tim Hunt said, "Low prices were required to help clear a market still dealing with exceptionally strong supply growth, a rising US dollar, a weak economic environment and reduced buying from China and Russia". Shipments to China were down almost 50% in October year on year while Russia has enforced a ban on imports from key suppliers.

 

While some markets have taken advantage of discount products, helping to avoid the accumulation of supply-side stocks, the challenge of avoiding stock accumulation will likely become greater in the coming months, Rabobank said.

 

Producers in many export regions may hit the brakes in the first half of 2015 due to low prices, compounded in the EU by the risk of superlevy payments, the report said. Decreased production, together with improved consumption in the US and, to a lesser extent, the EU will reduce the supply available on the international market in H1 2015, the report added.

 

Rabobank said, however, that this may not prove sufficient to generate a meaningful price recovery since demand is expected to be weak due to Chinese purchases tracking below the previous year and a continuing Russian trade ban.

 

Rabobank expects the market to gradually tighten in the second half of 2015, but said it may take a weak southern hemisphere production peak in 2015 to finally cause a price recovery to gain momentum.