EU Production Growth Dampens Dairy's Eventual Recovery

The world's milk surplus should reduce over the first half of 2016 as production slackens in some regions, but the market’s recovery will be slow, according to Rabobank's quarterly dairy report.

As anticipated, the last quarter of 2015 saw the world producing more milk than the market needed.

While the stock overhang didn't appear to worsen much, the need to clear product to less-high-paying regions of the world kept prices extremely low. Clearing this surplus in the face of weak buying from China and Russia has required pushing product into lower-paying markets.

"Looking forward, Rabobank expects the brakes to be applied to milk production in export regions in the first half of 2016, although this will be less dramatic and less evenly spread than we had in mind a few months ago," said Rabobank Dairy Senior Analyst Kevin Bellamy.

At the same time, lower pricing and some improvement in income growth will foster improved buying in deficit regions. These dynamics will see excess inventories gradually eroded as 1H 2016 progresses, with stocks approaching normal by around mid-year.

"Pricing pressure will still build over our forecast period, but we delayed the timing of the recovery and envisage a somewhat weaker trajectory than we had a few months prior," said Mr Bellamy – click here to read more.

In other news, this week's Global Dairy Trade (GDT) auction showed a 1.9 per cent increase in the GDT price index from the previous event.

The average price at the auction was $2,458 USD/MT, FAS.

Skim Milk Powder prices rose by 0.2 per cent, whilst Whole Milk Powder had a better performance, with a rise of 1.8 per cent.

Butter prices rose by 9 per cent, and cheddar prices by 1.1 per cent.

The last auction, on 1 December, had a rise of 3.6 per cent in the GDT price index, which followed three events of price declines – read more.

We would like to wish all our readers a Merry Christmas and a Happy New Year. The dairy newsletter will return on Friday 8 January, 2016.