6 October 2016

2 minute read

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 farmgate.

But, the price recovery is driven by falling supply rather than demand, and price increases will be limited by continued weak global demand and significant stock overhang, according to Rabobank.

Difficult conditions and low to negative farm margins have led to global milk production falling faster than expected. At the same time, demand for dairy products, particularly butter and cheese, has remained strong in the US, and has 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 3.4m tonnes in the second half of 2016, more than at any time since the global financial crisis - with a further 2.5m tonnes reduction due in 2017.”

Other key messages of the Global Dairy Quarterly Q3 2016 include:

• Farmgate 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 NZ 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 6.7m tonnes above normal levels.

TheCattleSite News Desk