Rabobank: Reduced Pressure on U.S. Dairies Likely As 2012 Progresses, Stronger Recovery Expected in Early 2013

July 2, 2012 12:59 PM
 

June rally brings temporary end to 14-month decline in dairy commodity prices, but demand is likely to remain lackluster.

A slow squeeze is likely to start reducing pressure on U.S. dairy producers through the rest of 2012, with a recovery gaining legs in early 2013.

That’s the outlook in the latest quarterly global dairy report from Rabobank’s Food & Agribusiness Research and Advisory group.

“The rate of price recovery will depend on the amount of excess stock accumulated during [the first half of 2012], the time it takes supply growth to lose momentum and the prospects for any demand improvement,” the Rabobank report notes.

The report, titled “A Slow Squeeze Coming,” says that though the market experienced a small rally in June as buyers moved to cover short term needs, U.S. milk prices remained 23% below year-ago levels.

Producer milk prices in the U.S. have fallen below breakeven levels in 2012 due to a wave of growth in the global milk supply. This substantial global price reduction has led to financial difficulties for producers who have not locked-in their feed purchases or who do not grow their own feed. Rabobank’s report outlines the expectation that global supply growth will lose momentum in coming months, as farmers outside the U.S. see a further reduction in milk prices and unusually favorable weather reverts to more consistent patterns.

Demand is expected to remain lackluster in the face of a weak global economy with the recovery being slowed by significant, but not alarming, stocks. As 2012 progresses and the condition of the international market improves, there should be a slow recovery in milk prices for farmers in the US. There is also the prospect of an acceleration of that improvement in early 2013.

Rabobank Group is a global financial services leader providing wholesale and retail banking, asset management, leasing, real estate services, and renewable energy project financing. Founded over a century ago, Rabobank has nearly $1 trillion in assets, operations in more than 40 countries, and the highest rating among private banks by S&P and Moody’s.
 

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