Increases in supply will slowly decrease international dairy prices in coming months, according to Rabobank. Dairy prices reached record levels in April, but decreased in mid-June when they fell 10% to 12%.
Overall, dairy prices are high by historic standards. Rabobank said decreases in milk production in export and import regions are shorting the market despite weak demand. Prices are expected to decline as supply improves in coming months, but the change is expected to be gradual.
“Seldom has a rally in international markets appeared so supply-side driven as this,” said Tim Hunt, global dairy strategist with Rabobank. “A loss of momentum in milk production growth was expected following an unattractive milk-to-feed cost ration in late 2012, but this has been exacerbated by atrocious weather in key growing areas in the first half of 2013. In the Northern Hemisphere, a cold and wet winter was followed by a late-arriving spring while Oceania saw a summer drought.”
Milk production declined 2.5% in March and 4.1% in April in the seven largest export regions of the world, including the European Union, the United States, New Zealand, Australia, Argentina, Brazil and Uruguay. That rate of decline was more than four times that during the global financial crisis.
Commodity feed prices will decline when crops are harvested in the fall with margins expected to be positive in most regions during the fourth quarter. There will be only a small improvement in demand during the second half of the year. Rabobank expects pricing will be driven in response to milk producers to improved margins and the desire of importers to absorb increased volume. They said this will “look more like a deflating than a puncturing of international prices.”
