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Dairy Prices Moving up, but Demand Still Weak, Rabobank Says

14 July 2016

GLOBAL - Global deliveries of milk have started to fall, while dairy markets are showing only modest demand growth.

Despite upward movement in prices at the end of quarter two growing inventories will continue to overhang the market as the world works its way through the current glut, according to the Rabobank Global Dairy Quarterly Q2 2016.

In the second quarter of this year, the world’s farmers started to react to protracted lower farmgate prices by slowing growth in production - as anticipated, production will start to fall in response to low farmgate prices, leading to sharp reductions in export surpluses.

Despite higher buying from China in the first half of the year, poor economic performance, low oil prices and geopolitics continue to weaken demand in many regions.

Global stocks continue to increase, with current stocks estimated to stand at 6.4m tonnes higher than the five-year average in liquid milk equivalent (LME) terms, representing around 7.5 per cent of annual trade.

Rabobank continues to forecast that prices will start to increase in the first half of 2017, but high levels of stock and weak global demand can threaten this.

In addition the decision of Britain to leave the EU could skew global competition if as forecast the euro weakens increasing the competitiveness of European products in export markets.

“While we still forecast prices to rise in 2017, these risk being dampened by continuing weak demand due to low oil prices, trade bans and lack of affordability in emerging markets,” said Kevin Bellamy, the report's author. “As a result, the light at the end of the tunnel remains undimmed."

TheCattleSite News Desk

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