Tuesday, October 16, 2018
 Growing Dairy Stockpile Weighs Down Global Markets  

China’s appetite for dairy imports is growing again and US consumers are eating more butter and cheese, but recent improvements in global prices are set to be swamped by an even higher tide of milk production from Europe.


Rabobank’s senior dairy analyst, Michael Harvey, says low oil prices and Russia’s ban on imports have contributed significantly to reduced dairy product consumption in many developing economies, while at the same time European production and stockpiles have continued to rise.

Despite a big production drop in South America and declining farm output in many other regions, global dairy commodity stockpiles are currently about 6.4 million tons above their historic “normal” levels and set to peak at 8.5m tons next year.

Much of that surplus is in Europe where milk production grew almost four per cent in the year to April and EU stocks are now at peaks last seen in 2009, before production quotas were abolished.

European milk production may even accelerate if Britain’s exit from the European Union (EU) weakens the euro’s value and makes exports more competitive, say researchers with agri banker, Rabobank.

Rabobank’s latest assessment of the global dairy glut does not expect much relief from depressed prices for Australian farmers until late 2016-17.

Australian milk production fell 2.7pc in the year to April in response to depressed world markets and last summer’s dry southern seasonal conditions.

While sharp declines in global production surpluses were likely to emerge by early next year, Rabo’s report said worldwide demand for dairy goods was likely to be generally weak for another year.

Low oil prices were a key factor according to senior dairy analyst, Michael Harvey, who noted energy resource-based economies in the Middle East and North Africa had less appetite for dairy imports at present.

Energy-rich Russia was also extending its significant import ban on products from Europe, the US and Australia until late 2017, while Chinese demand was growing more slowly than expected.

Chinese consumption had been tipped to grow at 2.5pc in 2016, but Rabobank revised its forecast to about 1.5pc, moving up to 2pc next year.

“While we still forecast prices to rise modestly in 2017, rises will be dampened by continuing weak demand due to low oil prices, trade bans and lack of affordability in emerging markets,” the report said.

“The light at the end of the tunnel remains, but prices will weaken back to support levels until tightening supplies eventually turn the market in the first half of 2017.”

Importantly, in Europe, where a recent rush of post-quota production was now forcing farmers to re-think their plans, Rabobank analysts say more structural growth is “unlikely” at current unprofitable prices.

However, there was a risk of a potential Brexit-initiated devaluation in the euro in the year ahead. This would make EU exports more globally competitive and insulate EU producers from low market signals.

“At the moment there are signs of margin pressures on European farmers and we are starting to see slowing production, but this may change if the currency tanks,” Mr Harvey said.

Fortunately domestic demand in Europe and the US was lifting, helped in part by the reviving popularity of butter and US consumers spending more on food service lines such as cheese.

But while economic costs and seasonal hits helped slash production and exports from Argentina and Brazil, New Zealand’s milk production only dipped 1.6pc to its second highest level on record because favorable seasons enabled farmers to milk 21.6b liters in 2015-16.

NZ production is tipped to dip a further 2pc in 2016-17 as farmgate milk payments remain below the cost of production for their third year running.

Source: Farm Weekly


Posted on Wednesday, July 13, 2016 (Archive on Wednesday, July 20, 2016)
Posted by bholcomb@adpi.org  Contributed by bholcomb@adpi.org