According to Rabobank’s Q2 quarterly report, global milk prices will ease from mid to late Q2 2014, while exportable supply is expected to continue rising due to improved margins experienced through high milk prices and falling feed costs.
The report states that an ‘exceptional season’ in the Southern Hemisphere coupled with strong production in the Northern Hemisphere should generate more than enough exportable supply to meet or even exceed China’s insatiable demand for dairy from the world market.
The rate of the price reduction however, will be limited by structural constraints on suppliers, the need to replenish depleted buyer inventories and ongoing demand growth in line with a slow economic recovery.
“The most crucial demand side question is whether China will sustain the frenetic buying we have seen on the international market throughout the last 12 months”, states Rabobank analyst Tim Hunt.
As far as regional Australian outlooks are concerned, Rabobank says that improved seasonal conditions and increased farmgate prices for Southern producers saw a marginal rise in milk flow recently. Rabobank expects a further recovery in milk flows in the first half of 2014 on the back of better weather and higher milk prices. A small exportable surplus can also be expected on the back of a 2% YOY production increase.