Rabobank expects a slow rebalancing of the U.S. dairy market, with limited significant upside for suppliers in coming months.
In its 2010 first-quarter trend and outlook report released this week, the Dutch-based agribusiness bank said "export markets will continue to take reasonable volumes of U.S. product in coming months, but are unlikely to offer enough upside to provide a rapid solution to ample supply availability in the domestic market.”
Among Rabobank's other observations of the U.S. dairy market:
· U.S. milk production continued to contract in year-over-year terms in the three months to February 2010. Improved yields were more than offset by herd reductions following extreme financial pressure on farms through most of 2009.
· Consumption of cheese and milk continued to expand in the fourth quarter of 2009, but the rate of growth slowed once more (to 1.3% year-over-year milk equivalent) as rising retail prices and ongoing concerns regarding the economy continued to bite.
· 2009's fourth-quarter exports rose 9% over year-earlier depleted levels.
· Reduced milk supply, improving local consumption and rising exports tightened up the U.S. market somewhat, with the All-Milk price up 37% on previous-year levels in February. Further slippage in corn prices has contributed to marginal profitability.
· Milk production looks likely to stabilize sooner than was expected three months ago. There is potential for suppliers to improve feed rates and benefit from full heifer pipelines in response to improved returns to milk production. January data showed the first herd expansion in 13 months, followed by a further small increase in February.
· The market is unlikely to require year-over-year growth in U.S. milk production through the second quarter of 2010.
· Product inventories remain substantial—with cheese stocks 13% above previous-year levels in January 2010 and CCC stocks still to be placed back into the system.
· While economic recovery is underway, the prospects of meaningful reductions in unemployment look bleak, tempering the outlook for consumer spending. Rising retail prices are also impacting dairy consumption. Disconcertingly, fluid milk sales fell in January in year-over-year terms.
Catherine Merlo is Western editor for Dairy Today. You can reach her at firstname.lastname@example.org.