Dairy prices will continue their retreat from record highs over the next year, but will not fall sharply, Rabobank said, warning of only a slow recovery in New Zealand milk output, which will leave the US as the only exporter able to raise shipments for now.
The bank, hiking its forecasts for prices of all dairy products except butter in the US, forecast that prices will «drift down» in the second half of 2013, as elevated prices choke off some demand in emerging markets, and buyers anticipate the ramping up of the southern hemisphere production season.
In New Zealand, the top dairy exporting country – which this month, the seasonal low point for milk output, began its 2013-14 marketing year – production typically peaks in October, after the placing of cows onto pristine spring pasture.
And some commentators have been forecasting a strong start to New Zealand’s production season this year, after rains revived pastures after an early-2013 drought, and with processing groups, such as Fonterra, forecasting bumper milk prices for farmers.
‘Likely to be disappointed’
However, Rabobank warned that «those expecting a bumper start to the New Zealand season are likely to be disappointed».
The dairy herd was only marginally larger than a year ago, thanks to culling accelerated by the drought and a slowdown in farm conversions to milk production.
Furthermore, New Zealand’s feed supplies are «generally scare», after being run down during the drought, leaving producers reliant on expensive imports.
New Zealand output will rise only 1% year on year in the July-to-December half, with exports likely to «fall significantly short of prior year levels», thanks to the run down of inventories.
New Zealand’s dairy shipments rose 11%, year on year, in the first four months of 2013 – a period during which milk production fell 11%, according to data from industry group DCanz.
 ‘Come too late’
Nor will supplies from other leading producing countries prove strong, with European Union output – which has suffered an «horrific» first half of 2013, with milk production curtailed by a cold spring, high feed prices and, this month, central European floods – to rise growth of «just» 1% in the second half of the year.
«Improved weather and price incentives will hit after peak lactation, and even the promise of low feed costs will come too late to produce dramatic production changes this season,» Rabobank said.
With smaller stocks to draw upon, EU exports will contract in the second half of 2013.
Australian output, depressed by poor weather, will also rise only 1% in the July-to-December half, as will production in the US, although here a fall in demand will free up extra supplies for export.
«The US will likely be the sole export region to offer a year-on-year increase in shipments to the world market, as production rises faster than local market requirements, and stocks of cheese and butter are drawn down to capitalise on attractive export pricing.»
Outlook for 2014
Prospects for supplies appear more upbeat for the first half of 2014, assuming typical weather, with New Zealand output to rebound 12% from the drought-affected levels of 2013, and supplies to ease up in Australia, the EU and the US, and Argentina and Brazil.
Exportable dairy supplies will soar 13% year on year in the January-to-June period next year.
«While this sounds dramatic, it reflects in part a rebound from weak comparables of 12 months prior,» Rabobank said.
«The surpluses will only be around 2% above those seen in 2012, hardly enough to keep up with structural long-term growth in deficit regions.
«As a result, those looking for a market crash in the first half of 2014 will most likely be disappointed.»
Source: Agrimoney