Bank Report Foresees Return of Milk Scarcity

10/6/2012 7:00 AM

ST. LOUIS — Rabobank has published a report looking at the global dairy industry in the third quarter of 2012, particularly examining supply, demand and pricing developments in key markets around the world.

The report, written by the bank’s Food & Agribusiness Research and Advisory group, says the global dairy market appears headed for a period of renewed supply scarcity in the next year.

The impetus for that tightening market comes largely from the supply side, where low milk prices, extreme feed costs and unfavorable weather are expected to slow production growth in export regions to a trickle.

Rabobank forecasts a reduction in the exportable surplus available from the “Big Seven” export regions (the EU, U.S., Australia, New Zealand, Brazil, Argentina and Uruguay) in the closing months of 2012 and first half of 2013 — the first such reductions in more than four years.

On the demand side, Rabobank says that some anticipated improvement in the economic position of consumers should provide an impetus to improved demand for dairy.

However, the story will be far more compelling in developing regions than the West, where employment and income growth are expected to remain at modest levels.

The bank predicts that, while the economies of China, Southeast Asia and Middle Eastern/North African countries will move at a slower pace than their 5-year average, incomes will still show real growth, employment will rise, consumers will buy more dairy, and the relative cost of importing versus procuring locally will remain stacked in favor of imports.

The report further explores these key points:

The nascent recovery of global dairy commodity prices evident late in the second quarter continued through the third quarter. Price tension was a function of a substantial slowdown in milk production growth in export regions and strong buying from import regions.

Falling milk production in both the U.S. and EU drove local wholesale prices up rapidly in the third quarter. The recovery in world market prices was more tepid (4 to 15 percent), reflecting better supply conditions in Oceania.

Milk production growth in key export regions will slow to a trickle over the next 12 months, as farmers respond to low milk prices, high feed costs and pockets of unfavorable weather.

Even factoring in only fractional consumption growth in the U.S. and EU, this will reduce the volume of surplus product available for international sale from key export regions.

Assuming a steady rise in demand for imported product, prices will need to rise substantially to achieve the required demand rationing to balance the international market.

Having heated up earlier, wholesale pricing in the U.S. and EU will see less upside in coming months, until international prices move into alignment as 2013 progresses.

Source: Rabobank.

Do the deer cause a lot of damage to the fruit and vegetable crops in your area?

  • Yes
  • No
  • Unsure

User Submitted Photos

View photos      Submit your photos

  Ag Markets at Lancaster Farming

2/7/2016 | Last Updated: 5:14 AM