Rabobank Offers Global Dairy Market Snapshot

July 7, 2010 07:00 PM

Source: Rabobank


Global dairy prices remain firm, slipping only a little in recent trade auctions despite an increase in the U.S. dollar; Rabobank reports in its Monthly Agribusiness Review for June 2010.


The combination of strong pockets of demand and sustained falls in production has made dairy prices indifferent to the recent European debt crisis, the international bank said. The outlook for milk pricing is also positive.


While the global economic recovery continues, sentiment has turned and the impacts of the European debt crisis have spanned virtually all markets, Rabobank’s Australia- and New Zealand-based analysts said.


The outlook for Asian economies remains strong, and the U.S. outlook is also positive even though recent jobs data have disappointed. The Australian economy continues to expand, although is not unaffected by the softening in global demand and the withdrawal of stimulus spending.


Other snapshots of the global dairy market:


  • Near-term dairy pricing remains extremely firm in international trade. Despite a 3.5% rise in the value of the U.S. dollar itself during May, the global Dairy Trade (GDT) auction June 1 yielded only marginal declines in powder prices for August delivery and a double digit rise in the price of anhydrous milk fat (AMF).
  • The easing of U.S. dollar prices was more substantial for later contract periods, with the market effectively now pricing in a 5%-7% fall in the cost of milk powders by Christmas, and a 15% correction in the fat market.
  • Exceptionally high near-term pricing reflects ongoing tension between strong pockets of demand and a sustained period of falling milk production in export regions. The tightness of the physical market was highlighted by the near indifference of recent pricing to the European Union (EU) sovereign debt crisis, Chinese attempts to rein in growth, and financial market jitters.
  • Nonetheless, the second half of the year could well see product availability improve somewhat, a scenario buyers at the GDT auction appear to have factored in.
  • In early June the EU commenced the sale of intervention stock, with 65,000 tonnes (t) of SMP and 25,000t of butter put out to tender (around three weeks of global trade in each product line).
  • The tide has also turned for milk production, with the total production of export regions expected to have risen in April for the first time in nine months, as the benefits of improving wholesale markets feed through to higher milk prices alongside still modest feed costs.
  • EU destocking and the return of milk production growth both reflect a healthy rebalancing of a market that has been propped up since late 2009 in part by post-financial crisis distortions. Some pressure relief is almost certainly in the interest of buyers and sellers alike, if we are to avoid a difficult boom/bust cycle.
  • A substantial market fall still appears unlikely, provided EU destocking is sensibly managed and the global economy continues close to its current trajectory. The supply tide is coming in, but that is likely to be a slow process, and could still be at least matched by demand side improvements.
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