Lower global milk production, fewer available dairy products for export and high domestic demand for butter and cheese in the U.S. and EU are improving the outlook for U.S. dairy farmers, according to the latest industry quarterly report from Rabobank.
Milk supplies from dairy export regions have fallen 2.6 million tons in the second half of 2016 year over year, and volumes available for export are down 4.5 million tons.
Low milk prices around the globe and weather challenges and high feed costs in different regions have reduced milk production in all the major exporting countries except the U.S.
Strengthening producer margins in the U.S. has made it the only major export region able to compensate for tightening global supplies, with exports up 19 percent in the third quarter of 2016 compared with year earlier levels, the analysts reported.
The U.S. market has kind of isolated itself from international prices, insulated by domestic butter and cheese demand, said Tom Bailey, a senior analyst with the bank’s food and agribusiness research and advisory team.
Dairy farmers are seeing a return to profits, but it’s only marginal, he said.
“It’s not going to get people overly excited; the market is still fragile,” he said.
Product prices in 2017 will be better, and it looks pretty good for U.S. dairy producers, but there will still be a few things to keep an eye on, he said.
Clearing EU intervention stocks that are overhanging the market in the face of weak demand for milk powder will be a real challenge, he said.
The EU just recently tried to sell some of the nearly 400,000 tons of skim milk powder, hoping to sell about 20,000 and only 40 tons sold, he said.
A strengthening U.S. dollar could also be a challenge to U.S. exports.
However, the U.S. will be the only export surplus market with a growing milk supply, the analysts said.
Significant recovery of global production and volumes available for export will be delayed until the second half of 2017 when the new Oceania season commences, they said.
The U.S. will be called on to help fill some of the gaps left in global cheese and butter shortages. And with fewer U.S. imports, solid domestic demand growth and continued draw-down of inventory, the U.S. should find itself in a fairly well-balanced domestic market for most of 2017, the analysts reported.
On the world stage, prices for dairy products have rocketed upward, driven by butterfat demand. Cheese and butter prices will continue to climb, but more stagnant prices are expected for milk proteins.
“The story really is we’ve ascended the low point in the market for now and we’ll be trying to figure out mid-level pricing over the next 12 months,” Bailey said.
Source: CapitalPress
Link: http://www.capitalpress.com/Dairy/20161221/us-dairy-outlook-a-little-brighter-analyst-says