Surpluses of exportable dairy products have already begun to weigh down milk prices, and the global milk supply continues to increase.
Milk producers have a tough road ahead in 2018, as global exportable surpluses of dairy products continue to expand.
Milk prices are expected to fall below break-even and not recover until late in 2018, Rabobank analysts said in their latest Dairy Quarterly report.
The analysts forecast Class III milk prices in the U.S. to drop about $3 per hundredweight to $13.99 in the first quarter of the year. Class IV prices are forecast at $12.34 per hundredweight.
Growth in global milk supply accelerated in the third quarter of 2017, increasing 2.2 percent year over year, and began to take a toll on commodity prices — including butterfat prices, which had been defying gravity.
“Exportable supply fundamentals will keep pressure on prices through Q2 2018, leading to further downward pressure on the dairy complex,” the analysts stated.
Combining production in the fourth quarter of 2017 and first quarter of 2018, the global market will confront a wave of exportable surplus that is equivalent to 3.2 billion liters (3.3 million metric tons) of milk above year-earlier levels, the analyst said.
The first signs of weaker milk prices have emerged in a number of export regions and pressure will build, squeezing farmers’ margins, the analysts reported.
“Buoyant dairy demand, particularly for cheese and butterfat, in the northern hemisphere has been a feature on dairy markets in recent times. However, demand growth is starting to moderate following a period of robust growth,” the analysts stated.
On the bright side, import purchasing in China, Southeast Asia and parts of North Africa is forecast to remain active through 2018, and cheese imports in Japan and China are providing support for cheese markets.
Whey prices, however, continue to be weighed down by strong production and growing stocks. And the possibility of intervention stocks of skim milk powder in the European Union entering the animal-feed market could add to that pressure.
In the U.S., there was a modest slowdown in milk production in September and October, but production year to date to December was 1.5 percent higher than a year earlier.
“Looking forward, continuing global supply pressure will trickle down to U.S. farmgate prices, putting downward pressure on margins — seeing many fall back below break-even,” the analysts said.
As a result, the analysts are forecasting a noticeable slowdown in U.S. supply growth in 2018, with increases hovering around 1.2 percent higher year over year in 2018.
Growth in domestic demand in the U.S. is expected to moderate in 2018 after two years of exceptional growth, resulting in sizable volumes of potential exports.
One thing to keep an eye on is the North American Free Trade Agreement negotiations, with two more rounds scheduled for early in the year, the analysts said.
“Risk of a U.S. exit from NAFTA has increased after five rounds of ‘modernizing’ the agreement have failed to advance amendments to the existing agreement. If NAFTA fails, market impacts could severely upset U.S. and global dairy prices,” the analysts said.
Source: capitalpress.com
