In Q2, the world’s farmers started to react to protracted lower farmgate prices by slowing growth in production—as anticipated, production will start to fall in response to low farmgate prices, leading to sharp reductions in export surpluses. Despite higher buying from China in the first half of the year, poor economic performance, low oil prices and geopolitics continue to weaken demand in many regions. Global stocks continue to increase, with current stocks estimated to stand at 6.4m tonnes higher than the five-year average in liquid milk equivalent (LME) terms, representing around 7.5% of annual trade. Rabobank continues to forecast that prices will start to increase in 1H 2017, but high levels of stock and weak global demand can threaten this. In addition the decision of Britain to leave the EU could skew global competition if as forecast the euro weakens increasing the competitiveness of European products in export markets.
While we still forecast prices to rise in 2017, these risk being dampened by continuing weak demand due to low oil prices, trade bans and lack of affordability in emerging markets. As a result, the light at the end of the tunnel remains undimmed.
Source: Rabobank
Link: https://research.rabobank.com/far/en/sectors/dairy/dairy-quarterly-q2-2016.html