Dairy prices set to recover this year as EU production slows

Global dairy prices will recover over the rest of 2016, as EU and New Zealand milk production begins to slow, according to Nathan Penny, Rural Economist with ASB Bank.

With post-quota production surging and low milk prices, both EU and New Zealand dairy farmers have been feeling the pinch.

Furthermore, with New Zealand production likely to fall and Chinese demand improving, Penny maintains that the conditions for the dairy price cycle turning are falling into place.

In EU milk production terms, Penny says that comparing milk production pre and post the quota removal, using annual changes, is dairy’s equivalent of comparing apples with oranges.

EU production was held back before quotas were removed last year and it then soared after quotas were removed.

Now however, this post-quota surge has passed and production growth has slowed as farmers struggle with low returns for their products, according to the economist.

In official EU data, this third point gets lost and as a result, Penny says that the annual comparisons overstate the recent trends in EU production growth.

“For example, the EU Commission shows that April 2015 to January 2016 was around 4% higher than the same period a year earlier.

“In comparison, annualising the seasonally-adjusted data over recent months shows that EU production is falling or at best flat.

“Moreover, with most dairy market buyers unware of this data disconnect, we expect some to be caught short of supply later this year,” Penny said.

Therefore, as this happens global dairy prices are likely to climb, he said.

Dairy futures market suggests no change in negative Global Dairy Trade auction

Whole milk powder (WMP) prices look set to wane again at tomorrow’s Global Dairy Trade auction.

The latest dairy futures market from ASB Bank suggests that as oil prices wane, so too will WMP prices. According to the futures market, WMP prices could be down between 0-2%.

At the last Global Dairy Trade, dairy prices fell for a sixth time, this time by 2.9% and WMP was down 0.8%.

Dairy prices only rose once this year at the auction, on March 1, when they increased by 1.4%.