Milk production appears to have continued to expand faster than demand in recent months. The EU was the key driver of supply growth during the period, as investment timed to coincide with the removal of quotas came online. But most regions continued to expand production. “Rabobank expects the market for new milk to tighten in 1H 2016, as low milk prices in NZ and further price falls elsewhere put the brakes on milk production, while demand rises as falling prices are passed on,” says Rabobank Global Strategist Tim Hunt.
Lower pricing and some improvement will foster improved buying in deficit regions. Russia will remain out of the market because of the trade ban, and Chinese imports will only stabilize (not increase) in 1H 2016.
Nevertheless, these dynamics will see excess inventories gradually eroded as 1H 2016 progresses, with stocks normalizing by around mid-year. Pricing pressure will build as 1H progresses—from modest in the later stages of Q1 2016 to significant late in Q2.
A strong El Niño climate pattern is currently active. This brings an increased risk (though no certainty) that it could lead to adverse weather in key production regions, tightening supply over the forecast period—particularly as milk prices in some regions are unlikely to be high enough to justify increased supplementary feeding if pastures dry up.
The removal of EU quotas—combined with the substantial depreciation of the euro in the last nine months—could lead to greater surplus growth in the EU than we currently forecast.
Risks are currently weighted to the downside for the global economy, and they include potential adverse impacts from further financial market volatility, China challenged in its attempt to rebalance its economy or the escalation of geopolitical tensions.
For more information:
Please contact the report’s author:
Tim Hunt: Tim.Hunt@Rabobank.com, Tel: +1 (212) 916-7833 (USA)
Kevin Bellamy: Kevin.Bellamy@Rabobank.com, Tel: +31 30 7121083 (Europe)
For other information please contact Rabobank press office:
Madelon.Kaspers@rabobank.com, Tel: +31 610887244
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