Archive: Rabobank: Low dairy prices to continue

Published 6 October 14

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In its latest quarterly report, Rabobank has suggested that there will be a prolonged period of low dairy wholesale prices in order to help balance the current surplus of product on the global market. As supply has continued to grow in key exporting regions since the middle of 2013, demand eased in the early part of 2014, leading to the downward trend in wholesale prices observed since the start of the year. Due to the lag between the fall in wholesale prices and those at the farmgate level, combined with easing feed prices, many farmers in the EU and US were still able to achieve decent margins and have maintained high levels of production into recent months.

Prices on the international market are now below the level Rabobank believes is sustainable in the medium term, suggesting that a bottom appears to have been reached. However, price recovery will take some time due to lags in reactions in supply and demand to the price signals, leading to the expectation that commodity prices will only return to an upward trend in Q3 2015. Milk supply growth in the big 7 export regions is forecast to slow to 1.6% in the first half of 2015, from the 5.1% year-on-year growth seen in H1 2015. This will help price recovery, but it relies on growth in China’s imports, as well as the removal of the Russian ban.