A robust import program by Chinese buyers, combined with a weather-impacted New Zealand season, combined to create a short-term rally for the global dairy industry in the first quarter of 2018, according to Rabobank’s latest RaboResearch report, “Dairy Quarterly Q1 2018: Turn the Pressure Down.”
The export engine has been running on most cylinders since mid-2017. However, weather risks have now been extended beyond New Zealand. Europe battled a cold front; Australia had localized bushfires; and drought conditions are at play in Argentina, Utrecht, Netherlands-based Rabobank said.
“The peak period of milk production in the Northern Hemisphere still looms as a pressure point for the global market in Q2 2018,” said Michael Harvey, senior analyst – dairy. “However, Rabobank does not see the Northern Hemisphere peak milk flows completely overwhelming the global market. EU milk production growth started 2018 on a high note, but is also expected to trend lower throughout the year.”
Previous expectations for the extent of pressure on global markets in the second quarter of 2018 have moderated, with a global rebalance looming in the second half 2018. The European Commission does not intend to purchase any skim milk powder (SMP) at the fixed intervention price in 2018, Rabobank added, instead focusing on clearing the intervention SMP stocks, which will continue to pressure SMP prices and likely divert milk solids to other product streams.
Farmgate milk prices continued to weaken in the first quarter of 2018 (albeit from a high base), and more downward pressure is expected. Meanwhile, the risk of higher feed prices is emerging.
Access the full report here.