Dairy market pricing steady, but a tighter fourth quarter is likely, says Rabobank

A dairy producer's gain is a dairy processor's pain.

A "slow squeeze" is likely to start reducing pressure on U.S. dairy producers through the rest of 2012, with a recovery gaining legs in early 2013, according to the latest quarterly global dairy report from Rabobank's Food & Agribusiness Research and Advisory (FAR) group. The report says that though the market experienced a small rally in June as buyers moved to cover short-term needs, U.S. milk prices remained down 23% overall, compared to this time last year.

Producer milk prices in the U.S. have fallen below break-even levels in 2012 due to a wave of growth in the global milk supply. This substantial global price reduction has led to financial difficulties for producers who have not locked-in their feed purchases, or who do not grow their own feed.

The Rabobank report outlines the expectation that global supply growth will lose momentum in coming months, as farmers outside the U.S. see a further reduction in milk prices and unusually favorable weather reverts to more consistent patterns.

Demand is expected to remain lackluster in the face of a weak global economy with the recovery being slowed by significant, but not alarming, stocks. As 2012 progresses and the condition of the international market improves, there should be a slow recovery in milk prices for farmers in the US. There is also the prospect of an acceleration of that improvement in early 2013.

Rabobank Group is a global financial services leader providing wholesale and retail banking, asset management, leasing, real estate services, and renewable energy project financing. Internationally the bank focuses on food and agriculture; in North America Rabobank is a premier bank to the food, beverage and agribusiness industry.