Milk prices forecast to remain high: Rabobank
Dairy farmers could find milk commodity prices soften from their record high over the next year, but this might not flow through to their milk payouts until the 2014-15 season, says Rabobank.
The way ahead will hinge to a large degree on Chinese buying, which shows no sign of letting up initially as milk products are scarce in the marketplace with wholemilk powder at a record US$5000 (NZ$6149) a tonne.
Almost certain to have a bearing over the next year will be extra milk production from United States feedlot farmers who are expected to take advantage of lower grain prices. Rabobank’s Hayley Moynihan said a dramatic fall was not expected in commodity prices in the short term as demand remained high in spite of record prices, but those prices would not last forever and more volatility could not be ruled out.
Prices have risen steeply from a year ago when wholemilk powder was selling for US$3200/t. At that stage there was a surplus from Kiwi farmers having a great finish to the 2011-12 season and more milk coming from the US and Europe.
The dramatic turnaround resulted from milk supplies falling because of dry spells in Australasia, a long European winter and high feed costs in the US caused by a drought in its corn belt this time last year.
Rabobank is working on its rolling yearly view of the dairy market in its quarterly report due out on Friday.
Chinese milk production has been identified as not growing as much as expected because of a severe winter and issues with livestock health and is expected to rely on more imports for its domestic needs. Chinese milk production from small-scale farmers was declining faster than production was increasing from larger-scale farmers. Moynihan said the evidence from China was, despite there being no official numbers, that demand was strong and this had helped to hold up prices.
She said Fonterra’s bacterium scare seems to have made little dent in milk demand.
‘‘We track exports from the big six exporting regions and there is less product, hence higher prices because there has been scarce supply. Where we see things going now hinges on how much milk is produced from New Zealand and the US mainly because they are the two key exporters where product is expected to increase.’’
Milk production is increasing in the US because lower grain prices and improved yields will assist farmers buying stock feed.
New Zealand production was running higher than expected due to recent mild conditions.
The effect of more milk on prices remained to be seen over the coming year, but the indications were they would remain firm until Christmas.
India had a reasonable monsoon season and its milk market was in balance, only exporting a small amount, while the growth rate of developing nations was slowing moderately, but would have some impact on demand.