Scoop has an Ethical Paywall
Work smarter with a Pro licence Learn More

Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 

Strong EU production delays price recovery

Strong EU production delays price recovery – Rabobank’s latest dairy outlook

Stronger-than-anticipated production out of the European Union has delayed the imminent recovery in global dairy markets, with little upside now foreseen until the second half of 2016, according to Rabobank’s latest Dairy Quarterly report.

The global outlook, released to Rabobank’s agribusiness clients earlier this week, says not only has the recovery phase been pushed out, but the trajectory appears to be weaker than initially forecast.

Rabobank research analyst and co-author of the report Emma Higgins said while the global dairy market was “a step closer towards a gradual rebalancing”, much of the improvement in market fundamentals continued to hinge on a slowdown in EU supply growth, which was now not expected to show signs of waning until the latter half of next year.

“European milk production is still advancing strongly following the removal of quotas seven months ago, with milk deliveries over that period up by 2.8 per cent – an increase of more than two billion litres,” she said.

“The strength of post-quota supply growth, particularly out of Ireland and the Netherlands, is evidence that their investment in cow numbers and on-farm infrastructure has been stronger than anticipated.

“EU milk prices have also held up better than expected, aided somewhat by the recent depreciation of the euro, with prices remaining above operational costs and therefore not acting as a significant deterrent to production.”

Advertisement - scroll to continue reading

Are you getting our free newsletter?

Subscribe to Scoop’s 'The Catch Up' our free weekly newsletter sent to your inbox every Monday with stories from across our network.

Rabobank general manager Country Banking New Zealand Hayley Moynihan said this delay in the sustained upturn in global prices would continue to have a profound impact on New Zealand’s dairy industry, with cash flows now expected to remain at low levels well into the 2016/17 season.

Ms Moynihan acknowledged the pressure this would continue to place on dairy farmers.

“With prices remaining below the cost of production for many, and for the third consecutive season, this can be particularly stressful for producers and their families. Rabobank will continue to support their clients during this difficult downturn, as we remain confident about the longer-term prospects for the industry,” she said.

Ms Moynihan said the revised forecast market indicators were pointing towards an improvement in cash flows midway through the 2016/17 season. Media Release December 17, 2015

The report said despite production growth slowing considerably in the southern hemisphere and also the US, with New Zealand’s production expected to be down by seven to 10 per cent this season, the global market would remained oversupplied until the brakes were also applied in the EU.

“The projected recovery in the global dairy market also assumes modest consumption growth, particularly in second-tier importers,” Ms Higgins said “but it is promising that we are no longer seeing a build-up of stocks in China and Russia, which have been overhanging the market in recent months.”

Rabobank’s current forecast pegs a 28 per cent increase in the world (FOB Oceania) whole milk powder price by the December Quarter 2016, to 3,200/tonne.

Prices could shift higher, Ms Higgins said, if milk supply tightens more rapidly than expected on the back of adverse weather conditions, with the strong El Nino weather pattern raising production concerns for Australia and South America.

Rabobank New Zealand is a part of the international Rabobank Group, the world's leading specialist in food and agribusiness banking. Rabobank has more than 115 years' experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank is structured as a cooperative and operates in 40 countries, servicing the needs of approximately 8.8 million clients worldwide through a network of more than 1000 offices and branches. Rabobank New Zealand is one of New Zealand's leading rural lenders and a significant provider of business and corporate banking and financial services to country's food and agribusiness sector. The bank has 33 branches throughout New Zealand. Rabobank also operates RaboDirect, New Zealand’s first internet-only bank specialising in savings and deposits.

ENDS

© Scoop Media

Advertisement - scroll to continue reading
 
 
 
Business Headlines | Sci-Tech Headlines

 
 
 
 
 
 
 
 
 
 
 
 

Join Our Free Newsletter

Subscribe to Scoop’s 'The Catch Up' our free weekly newsletter sent to your inbox every Monday with stories from across our network.