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Stockpiles tipped to keep dairy prices flat

Date: 2016-05-20 14:13   Writer: admin

After a short-lived “mini-market” flurry, world dairy prices are likely to remain subdued for some months while the market chews through stockpiles of product, say analysts.

Average prices at the last two Global Dairy Trade auctions have dipped,with wholemilk powder prices,key in determining Fonterra’s milk price to farmers,taking significant hits,after sharp price improvements in auctions over August and September.
Rabobank research analyst Emma Higgins said world dairy supply and demand dynamics remained out of alignment, with “a lot of excess milk  sloshing around” and no real  shift in  underlying market  fundamentals despite predictions that milk production in other countries would dry up along with prices.

“The supply taps have yet to be turned off. Farmers in the US  and Europe are continuing  to expand  production. Data for August suggests that production is still up out of Europe. They are certainly going great guns after having quota shackles removed,” she said.

However these production levels were not sustainable at current prices.

“It’s been a natural response to the removal of the shackles but what we are expecting to see in coming weeks and months is that as farmers shift their cows off the paddock and into barns, the prices will start to bite. Farmgate prices have started to fall and yields will drop because they won’t be able to sustain the investment (in higher production).”

Higgins said the short improvement in GDT prices had been “a bit of a mini-market” and due to some buyers being concerned about New Zealand milk production falling.

But buyers, including second and third tier markets, were “really full to the brim” with product and most importantly, China import demand remained weak.

Stabilisation of Chinese import volumes would be one of the biggest triggers for dairy price recovery and was expected in the middle of next year, Higgins said.