Rabobank sees stable milk prices

n Rabobank says further 2019 upside in commodity prices is limited. PICTURE: Rabobank

TIGHTENING milk supply, reduced stocks, and price stability continue to be the key themes across global dairy markets, Rabobank’s second-quarter dairy report says.

Senior dairy analyst Mick Harvey says milk powder prices performed well, posting year-on-year increases of more than 30 per cent on lower milk supply and falling stocks.

“Global supply and demand fundamentals will continue to support commodity prices at current levels in Q3 2019,” Harvey says.

However, he says further upside in commodity prices is limited.

“Inventory levels on the buy-side have improved following a period of more aggressive purchasing. Also, the milk supply curve will turn positive against low comparables in the coming quarter, albeit very slowly.”

Based on Rabobank forecasts, the global commodity market has peaked. However, fundamentals over the forecast period will prevent a severe down-cycle in 1H 2020.

The report says combined year-on-year milk supply growth from the big seven exporters – the US, the EU, New Zealand, Australia, Brazil, Argentina, and Uruguay – stalled in Q1 2019.

“Farmgate milk prices are unable to mitigate expensive inputs, with margin squeeze resulting in tumbling collections in Australia, European supplies trailing behind year-on-year, and US growth below historic averages,” it says.

“Weather challenges in Argentina and New Zealand are starting to bite and will add to supply pressure over the coming months.

The outlook for milk supply for the big seven will remain tight to 2020 with particular pressure felt in 1H 2019, as milk production dips into negative territory not seen since 2016. This will support further upside for global prices.

“Demand outlook uncertainty remains heightened, and global economic growth is expected to weaken across the next 24 months,” the report says.

The EU’s milk supply growth is unlikely to lift until 2H 2019 as intervention stocks have yet to be fully absorbed by the market and a discount for EU SMP will continue into Q2 2019. The US may not realise the full upside occurring in the global dairy markets, due to adequate domestic supply coupled with trade challenges.

New Zealand’s milk flow growth will moderate over the tail end of the season, as dry conditions take hold.

Australian milk production will continue to fall. Farmgate milk prices have improved, with more upside to come in 2019/20, but farmgate margins are tight and milk supply will shrink.


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