The global dairy market tightened considerably in mid-March and is predicted to remain tight over the next six months, according to Rabobank’s latest dairy quarterly report.
While dairy market demand remained weak in the EU and U.S., importers continued to seek increased quantities, led by a surge in Chinese buying. Strong buying from China and a sharp drop in New Zealand created a large premium for whole milk powder over other product prices and for international market prices over domestic U.S. wholesale prices. The end of the season in the Southern Hemisphere has been poor, exacerbated by extreme weather in several regions, particularly New Zealand.
The weak end of the Southern Hemisphere season is expected to overlap with a weak supply peak in May in the Northern Hemisphere, which will cause total milk production in export regions to fall below prior-year levels in 1H 2013. According to Rabobank's projections, lower milk production will not be much of a problem in surplus regions with weak demand; but, it will reduce supply availability for the international market, even after accounting for stock sales from the U.S. Moreover, Chinese buying will slow somewhat in coming months, while buyers in other import regions will look for additional supply to meet local market requirements.
“The quest for additional supply should ensure a tight global market environment through Q2 and Q3, before a new Southern Hemisphere season and an easing of global feed prices enables the market to balance at somewhat lower prices in Q4,” said Tim Hunt, Rabobank global strategist. “The sharp divergences in prices evident between different product lines and regional markets should slowly abate as 2013 progresses. In particular, U.S. wholesale market prices, significantly discounted in early 2013, should move back to lower discounts by mid-year as the global market tightens and U.S. stocks are cleared. But, regional market rigidities will likely ensure that normal relativities are not fully restored until late in the year.”
Rabobank remains pessimistic on EU and U.S. consumption prospects, factoring in net growth of zero in consumption from these two markets in the first half of 2013. If either outperforms expectations, less product will be available for export, contributing to more market upside. The bank also assumes a better Northern Hemisphere crop year will allow for the potential of widespread planting of grains and oilseeds, driving down global feed costs in Q4. Another poor crop would generate further market upside, the report says.
While dairy market demand remained weak in the EU and U.S., importers continued to seek increased quantities, led by a surge in Chinese buying. Strong buying from China and a sharp drop in New Zealand created a large premium for whole milk powder over other product prices and for international market prices over domestic U.S. wholesale prices. The end of the season in the Southern Hemisphere has been poor, exacerbated by extreme weather in several regions, particularly New Zealand.
The weak end of the Southern Hemisphere season is expected to overlap with a weak supply peak in May in the Northern Hemisphere, which will cause total milk production in export regions to fall below prior-year levels in 1H 2013. According to Rabobank's projections, lower milk production will not be much of a problem in surplus regions with weak demand; but, it will reduce supply availability for the international market, even after accounting for stock sales from the U.S. Moreover, Chinese buying will slow somewhat in coming months, while buyers in other import regions will look for additional supply to meet local market requirements.
“The quest for additional supply should ensure a tight global market environment through Q2 and Q3, before a new Southern Hemisphere season and an easing of global feed prices enables the market to balance at somewhat lower prices in Q4,” said Tim Hunt, Rabobank global strategist. “The sharp divergences in prices evident between different product lines and regional markets should slowly abate as 2013 progresses. In particular, U.S. wholesale market prices, significantly discounted in early 2013, should move back to lower discounts by mid-year as the global market tightens and U.S. stocks are cleared. But, regional market rigidities will likely ensure that normal relativities are not fully restored until late in the year.”
Rabobank remains pessimistic on EU and U.S. consumption prospects, factoring in net growth of zero in consumption from these two markets in the first half of 2013. If either outperforms expectations, less product will be available for export, contributing to more market upside. The bank also assumes a better Northern Hemisphere crop year will allow for the potential of widespread planting of grains and oilseeds, driving down global feed costs in Q4. Another poor crop would generate further market upside, the report says.
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