In its Dairy Quarterly report, released in January, Rabobank said global dairy prices had ‘‘rocketed upwards’’ as production has dropped sharply in key dairy export regions Australia, New Zealand and Europe while dairy demand has strengthened in the United States and Europe.
With any significant recovery in exportable volumes unlikely until the seasons start in Australia and New Zealand in the latter half of 2017, and China set to make a meaningful return to the international market, the report says the current price rally has further upside to come.
Report co-author Rabobank senior dairy analyst Michael Harvey said while prices had improved across the board, the recovery would remain ‘‘bumpy’’ as prices across the dairy complex became increasingly divergent.
Results from the most recent Global Dairy Trade auction — where the index declined 3.9 per cent — provided confirmation of this bumpy road with many buyers absent from the market due to the holiday season.
‘‘Whole milk powder has posted the strongest recovery in recent months, with prices increasing by more than 45 per cent in the last six months of 2016, while consumer and food-service demand for butter is behind much of the upswing in dairy fat pricing,’’ Mr Harvey said.
‘‘In contrast, surplus protein stocks in the form of skim milk powder continue to weigh on the market, which has limited its upside.’’
Mr Harvey said the disparity in commodity prices had limited the ability of Australian producers to capture the rally in global prices — although there had been some positive movement in farm gate milk prices in recent months.
‘‘Whole milk powder makes up less than 10 per cent of the Australian product mix with our focus on cheese-and-whey products due to contractual arrangements, so this has muted our ability to capture much of the increase in global prices this season.
‘‘That said, with all dairy prices set to improve over coming months, it has considerably lifted expectations among Australian farmers for stronger opening prices in the 2017-18 season.’’
Seasonal conditions permitting, Mr Harvey said, it would take some time for improved farm gate prices to translate into a recovery in Australia’s milk supply volumes, with production pegged to fall by seven per cent this season.
‘‘With annual production expected to fall back below 8.9billion litres, it is likely to be the lowest recorded level in more than 20 years,’’ he said.
‘‘However with dairy producers armed with sizeable volumes of on-farm feed, irrigation water and access to cheaper supplementary feed, they should be well-placed to make up some lost ground next season.’’
Source: CountryNews
Link: http://www.countrynews.com.au/2017/02/05/4176/less-milk-means-higher-prices
