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Global dairy prices remained floored through the first several weeks of this year, before a “surprisingly vigorous bounce” started in mid-February, but the strength of the recent rally is hard to justify based on current fundamentals, according to the Rabobank Food & Agribusiness Research and Advisory group’s Q1 2015 “Dairy Quarterly” report, released Monday.
By mid-March, whole milk powder prices were 42 percent higher than they were three months earlier, while butter and skim milk powder prices were up 20 percent and cheese was largely unmoved, the report noted.
“We have passed through the worst for dairy market fundamentals, but things aren’t likely to be as tight through the middle of the year as the market is currently factoring in,” said Tim Hunt, Rabobank global dairy strategist and the report’s author.
Milk production growth has lost momentum in export regions, the report noted. Milk prices have fallen across the board (tightening producer margins), European Union (EU) dairy farmers are reining in production to avoid quota penalties (before quotas are removed forever on April 1), while a dry spell in February and March significantly weakened the shoulder of the New Zealand season.
For the Big 7 export regions combined, December saw year-over-year growth slow below 3 percent for the first time in 17 months.
While there has been a slowdown in the growth of exportable supply, the world’s two largest import buyers have continued to slash their purchases, the report noted.
Through the fourth quarter of 2014, Chinese dairy imports were down 55 percent year-over-year, while Russian imports were down 30 percent.
Improved product availability, lower prices and the “sale of the century” marketing by exporters have resulted in “enormous increases” in the volume of product soaked up by other import buyers.
But trade volumes still contracted marginally through the fourth quarter (down 3 percent), the first “demand-led” contraction in export supply since 2009.
There are rays of light in what has been a bleak period for global dairy demand, as rising employment, income growth and lower prices unlock improved consumer appetite in many regions, Rabobank said.
But weak import buying from China and Russia continues to cast a huge shadow over the international market and Send me more information.