Global dairy prices will stabilise this year, as rising New Zealand production “applies the brakes” to the recent rally, Rabobank said.
But brisk demand from China will keep markets balanced, while tensions with Mexico threaten to slow growth in US production and exports.
Rabobank forecast whole milk powder prices in Oceania to fall to $2,900 a tonne in April to June this year, rising back to $3,200 a tonne in the October to November period, from an average of $3,190 in the first three months of the year.
Skim milk powder prices were in Oceania were seen remaining at their current levels, average $2,000 a tonne in the October to December period.
New Zealand dairy production
The stabilisation of prices comes as the recent fall in production levels off.
“It will, however, be the second half of 2017 before we finally see growth in global milk production and any increase in export surplus,” Rabobank said.
In New Zealand, the world’s top exporter, Rabobank noted that “producer confidence for this season is markedly higher than this time last season”.
Fonterra, the country’s main dairy co-operative, has forecast prices for the current 2016-17 season at NZ$6 per kilogramme of milk solids, up 54% yeawr on year.
Strong comeback for New Zealand
And New Zealand production has surprised to the upside.
“Despite the poor start to this season’s production volume, milk flows have surprised with a strong comeback: milk flows are just 3% behind last season,” Rabobank said, citing good climate conditions from late 2016.
“Feed is in plentiful supply and affordable, and there is a general expectation that farmers will be looking to make up for lost production earlier in the season, off the back of a favourable forecast milk price,” Rabobank said.
“Accordingly, we expect New Zealand’s full-season production levels to finish just down 2% on last season.”
Recovery in EU production
Production prospects in Europe are also rising, thanks to farmgate prices E33.7 per 100kg.
Rabobank notes that farmgate prices are at levels “not seen since November 2014”.
“With input prices rising only modestly, most European farmers have moved back into a cash-positive position, and we now expect European production to rise as the new season gathers pace towards peak production,” Rabbank said.
Rabobank forecast cumulative production for the first half of 2017 down 1.0% year-on-year.
Mexico tensions
And US production is also closing the gap on last season month by month.
The US dairy industry has remained resolute over the last 12 months, as most of the dairy world faced major challenges.
But export prospects are challenged by recent political developments.
“Driven by political and economic factors Mexico has sought to differentiate imports away from the US, and this has resulted in an increase in EU exports to Mexico of 10% in the three months to January,” Rabobank said.
“Risk for the US to lose further share of Mexico and TPP buyers could potentially cause problems for US dairy producers, creating downward pressure on US product prices.”
“Moreover, many US dairy farmers rely heavily on immigrant labour,” Rabobank said.
“Immigration policy changes suggested by the current administration, if executed, will create a large gap in the labour supply available to dairy farmers across the country.”
Rabobank forecast average growth for the US over the course of 2017 to move to just over 1% growth, compared to last year’s 1.6%.
Chinese demand grows strongly
But the market will be kept in balance by rising demand from China, the world’s biggest import market.
“With worse-than-expected official production data for 2016, we lower our production forecast,” Rabobank said.
Production growth for 2017 is now forecast at 1.7%.
“With our revised forecasts for production and consumption, we retain our liquid milk equivalent net import forecast growth in 2017 at 20% year-on-year.
Source: Agrimoney.com