Dairy prices set for 'substantial recovery' by mid-2016, Rabobank says
By Tina Morrison
Aug. 18 (BusinessDesk) - Dairy prices, which have slumped to a six-year low, are set for a substantial recovery by
mid-2016, according to agri banking specialist Rabobank.
Average dairy product prices plunged to the lowest level since August 2009 at the last GlobalDairyTrade auction a
fortnight ago, amid increased supply and weak demand. Still, the factors to trigger a turnaround are now in place and a
substantial improvement in prices is expected by mid-2016, Rabobank said in its dairy industry note 'Riding Out the
Storm'.
Rabobank says dairy prices are set to rise as milk price reductions in China start to choke off domestic production
growth, lower New Zealand production leads to a supply-side adjustment in export regions, the collapse in international
commodity prices reduces supply growth from the US and EU, and as accelerated dairy consumption growth depletes current
accumulated stocks.
"These mechanisms that will eventually rebalance the market have been slower to trigger than expected, but they are now
underway," according to Rabobank senior dairy analyst Michael Harvey, who co-authored the report. These factors will
work together to tighten the market for "new" milk and a significant price recovery is expected to be underway by
mid-2016, he said.
New Zealand was harder hit during the current downturn because of the relatively strong New Zealand currency, the
nation's small domestic market, and the country's dairy exposure to China and to whole milk powder, which are the
worst-hit markets, Harvey said.
Since the start of the year, the price for whole milk powder on the GlobalDairyTrade platform has fallen by almost a
third to US$1,590 a tonne. That's prompted Fonterra Cooperative Group to cut its forecast payout to dairy farmers to
below the cost of production and prompted some economists to revise down their expectations for economic growth in the
coming year.
A gain in NZX whole milk powder futures contracts suggests the price for New Zealand's key export commodity may rise 15
percent in tonight's auction, according to OMF financial markets director Nigel Brunel. That follows declines in 10 of
the last 11 fortnightly auctions.
(BusinessDesk)