Dairy prices look likely to fall further, but the decline will potentially slowed by the need for buyers to refill depleted inventories, and a drought threat to New Zealand production.
The UK’s DairyCo bureau cautioned that, after falls in world dairy commodity prices last month, «the same is expected in April», with values undermined by the boost to output spurred by strong production margins.
«Wholesale prices are generally trending downwards across the globe, as milk production continues to perform well allowing for stocks to build,» the bureau said.
A drop in values at the GlobalDairyTrade – where prices have fallen more than 20% since early February, signalling a bear market – «acts as an indication of where global wholesale prices could be going in the near future».
The market decline has already been begun to be reflected in prices paid by processors to farmers, with FrieslandCampina, the Dutch co-operative, this month cutting by E1.25, to E41.25, per 100 kilogrammes of milk its offer to producers.
In continental Europe in particular, «any sustained pressure on processor margins is likely to be reflected in farmgate prices,» DairyCo said.
‘More than enough exportable supply’
Meanwhile, Rabobank said that the market had begun a «slow easing in dairy commodity prices», also highlighting the boosts to milk production volumes from higher values.
The bank said that «exportable milk supplies began rising strongly in the October-to-December quarter», as New Zealand producers ramped up output in response to record price offerings.
Now a «strong» start to the northern hemisphere production season, «on the back of an exceptional season in the southern hemisphere, is now generating more than enough exportable supply to exceed additional import needs» by China, whose demand has been key to supporting prices.
EU milk deliveries were 4.7% higher year on year in January, the latest month available.
In the US, farm officials this month raised by 400m pounds to 206.1bn pounds their forecast for milk production this year, representing an increase of 4.9bn pounds year on year.
«In light of improved producer returns, a herd expansion is expected later this year,» the officials said.
‘Depleted inventories’
However, Rabobank also highlighted dynamics, including relatively small producer inventories, likely to counter somewhat the pressure on dairy prices.
«The need to replenish depleted inventories in other key markets [than China] will provide some support for the market,» the bank said.
Also, while Australia’s milk production has returned to year-on-year growth, the strong pace of increase in New Zealand has shown signs of waning.
«Dry conditions continued to plague the upper North Island through March, with the highly anticipated Cyclone Lusi providing disappointing rain for most.
«While mil flows are tracking well above prior year levels in those regions the prospect of a sharp, early end to the season remains.»
Source: Agrimoney
