Rabobank expects an easing of global milk pricing from mid to late second quarter of 2014, according to its most recent Dairy Quarterly report. Exportable supply rose strongly in the fourth quarter of 2013 and is expected to continue into early 2014 as producers respond to improved margins through high milk prices and falling feed costs.
A strong Northern Hemisphere production season, on the back of an exceptional season in the Southern Hemisphere, should generate more than enough exportable supply to exceed China’s extraordinary additional needs from the world market, loosening the market somewhat. However, the rate of price reduction will be limited by structural constraints on suppliers, the need to replenish depleted buyer inventories and ongoing demand growth in line with a slow economic recovery.
Tim Hunt and analyst at Rabobank said:
“The most crucial demand side question is whether China will sustain the frenetic buying we have seen on the international market throughout the last 12 months.”
In the EU Rabobank expects production to rise by an impressive 4% year on year (YOY) for the first half of 2014, fuelling a surge in exports. Fractional growth in the second half of 2014 will be boosted in the first half of 2015 when current quotas are eliminated and the EU will likely make a substantial contribution to boosting international supply.
Rabobank analysts believe that the US domestic market will only show modest growth over 2014. But improved supply momentum should see exports grow strongly in 1H 2014.
Turning to the Southern Hemisphere, Rabobank expects the final three months of the New Zealand season (to May 2014) to see production at least 20% to 30% higher than the drought-impacted finish to the 2013 season. While export volumes can be expected to taper off through season end, shipments are likely to continue to trend at least 10% above the previous year due to higher milk flows.
Meanwhile in Australia, improved seasonal conditions and increased farmgate prices for Southern producers saw a recent rise in milk flow, albeit marginal. Rabobank expects a further recovery in milk flows in the first half of 2014, on the back of better weather and higher milk prices. A small exportable surplus can also be expected on the back of a 2% year on year production increase.
Where Brazil is concerned, a drought in the Southeast of the country, coupled with weak local demand growth, is expected to slow Brazilian supplies, simultaneously reducing import activity as supply expands faster than local demand.