Dairy recovery expected to be a slow-burner

Published 18 November 15

Global milk supplies from key exporters are starting to slow down and wholesale prices have shown signs of improvement in recent weeks. However, the fall in prices at the latest GDT result confirms the warning from industry analysts that a sustained recovery is likely to be slow to get underway.

One of the main reasons for this is the large volume of dairy stocks built up during the market downturn. SMP levels are particularly high with EU stocks forecast to more than double in 2015, reaching just over 350k tonnes by the end of the year. These stock burdens are expected to keep pressure on prices during the first half of 2016, even after milk supplies tighten.

Dairy recovery graph 1

High stocks in key importing regions are also slowing market recovery by keeping import demand sluggish. Chinese powder imports are still significantly lower than 2013 and 2014, although imports were exceptionally high in those two years. High stock levels, combined with growing domestic milk production, are expected to hamper any meaningful growth in Chinese imports until the second half of 2016, according to Rabobank.

Dairy recovery graph 2

Taking all this into account, Rabobank predicts it will be late 2016 before sustained pressure builds to push prices up.