Rabobank analysts are forecasting a protracted period of low prices in international and regional dairy markets and a substantial fall in the U.S. market by early 2015.
Dairy markets are in for a bearish ride over the next 12 months with falling prices exacerbated by a pull back in Chinese buying on the international market and Russia’s ban on imports from key suppliers, Rabobank analysts report in their most recent quarterly dairy report.
International dairy prices softened considerably in the second quarter in response to higher milk output. But the decline became disorderly in the third quarter when a strong wave of milk from export regions collided with the weaker Chinese demand and Russia’s ban. With other importers unable to take up the slack, the market loosened considerably, Rabobank reported.
“All signs suggest that a prolonged period of low prices will be required in order to clear the international market,” the analysts stated.
Cheese and whey prices on the international market fell 15 percent in the third quarter, and butter and powders dropped a whopping 25 percent to 30 percent, the analysts report.
“Prices have contracted for seven months straight and now sit in line with the lows reached in the 2012 trough,” they stated.
The price of internationally traded commodities has fallen 30 percent to 45 percent from February levels, and Rabobank analysts believe a bottom has been reached in the international market. But market rebalancing will be a slow process, they reported.
The Big 7 export countries increased milk supply a total of 4.3 percent in the three months to July, while demand for additional milk in surplus regions remained weak and export surpluses continued to build.
Chinese import buying could be down 75 percent year over year in the second half of 2014, and buying from both China and Russia are likely to be weak until the third quarter of 2015, the bank reported.
The U.S. market thus far is defying gravity with milk and product prices far above international prices. U.S. butter markets are now trading at twice the price of the FOB Oceania price.
A lack of U.S. milk supply growth earlier in the year — due to a cold winter, regional feed quality problems and producers’ desire to pay down debt — combined with strong exports to support strong prices, Rabobank reported.
But it won’t last, the analysts warn.
U.S. milk production in 2014 is likely to increase 3.5 percent year over year. Domestic demand growth will be slow, exports will fall below prior year levels and imports will increase, they said.
A big dip in U.S. milk prices is expected in the first quarter of 2015, with Class III losing more than $4 per hundredweight and Class IV losing about $2.50 per hundredweight from the end of 2014.
Rabobank forecasts current U.S. wholesale butter prices to drop 50 percent and cheese prices to drop 30 percent by the second quarter of 2015.
The analysts expect growth in global milk supply to slow over the next 12 months. The rate of slowdown, however, will be affected by farm milk prices that remain high in many regions, the removal of EU quotas in April 2015 and a significant decline in feed costs.
International and regional prices are expected to begin recovering in the third quarter of 2015 with China’s return to the market and the assumed reopening of the Russian market, the analysts stated.
Quarterly dairy prices and forecast
World (FOB Oceania) Q1’14 Q2’14 Q3’14 Q4’14 Q1’15 Q2’15 Q3’15
dollars per ton
Whole milk powder 5,043 4,150 2,931 2,900 3,045 3,100 3,565
Skim milk powder 4,918 4,067 3,044 2,850 2,950 3,025 3,450
Butter 4,620 4,000 3,119 2,950 3,000 3,025 3,500
Cheddar cheese 5,050 4,708 4,025 3,500 3,450 3,500 4,100
Sweet whey powder 1,414 1,340 1,194 1,170 1,275 1,350 1,350
U.S (AMS announced) Q1’14 Q2’14 Q3’14 Q4’14 Q1’15 Q2’15 Q3’15 Q4’15
dollars per pound
NFDM 2.06 1.93 1.76 1.39 1.39 1.37 1.47
AA butter 1.76 2.00 2.50 2.24 1.66 1.42 1.59
Block cheddar 2.19 2.23 2.08 1.99 1.62 1.59 1.76
Whey powder 0.63 0.68 0.69 0.60 0.58 0.61 0.61
dollars per hundredweight
Class III milk 22.61 22.75 22.80 21.11 16.93 16.68 18.41
Class IV milk 23.02 23.04 23.40 19.31 16.82 15.67 17.17
Source: Capital Press