International dairy markets continue to suffer from low prices according to Rabobank’s latest Dairy Quarterly report, though the rate of decline in the price of dairy commodities has slowed compared to that seen in Q3 2014. Exceptional milk production growth in export regions in the last nine months has outstripped weak local consumption, boosting supply in the international market and forcing prices to fall. However, low prices have succeeded in clearing huge volumes, with trade growth up 15% year on year. While Rabobank believes that there are signs of price stabilisation, climbing off the market floor may take some time.
“Low prices were required to help clear a market still dealing with exceptionally strong supply growth, a rising US dollar, a weak economic environment and reduced buying from China and Russia” states Rabobank analyst Tim Hunt.
China has continued to buy far less from the international market than this time last year – with incoming shipments down almost 50% in October year on year as the country continues to work its way through excess inventory. Meanwhile, Russia’s enforced ban on imports from key suppliers has meant that globally prices have had to fall by 30-50% from their peak, to encourage buying from second-and-third- tier importers, such as South-East Asia, the Middle East and North Africa, to clear the market.
While these markets have taken advantage of discount products, helping to avoid the accumulation of supply-side stocks, the challenge of avoiding stock accumulation will likely become greater in coming months. Much depends on how quickly the world’s dairy suppliers respond to recent price cuts.
Low prices, compounded in the EU by the risk of superlevy payments, should see producers in many export regions hit the brakes in H1 2015. Together with some improvement in consumption in the US, and to a lesser extent the EU, this will reduce the amount available on the international market in 1H 2015. However, this is unlikely to prove sufficient to generate any meaningful price recovery as demand looks set to continue at weak levels due to Chinese purchases tracking below the prior year and a continuing Russian trade ban.
Rabobank expects the market to gradually tighten in 2H 2015. However, it may take a weak southern hemisphere production peak in 2015 to finally tip the balance for a price recovery to gain momentum.
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Tim Hunt: tim.hunt@rabobank.com +1 347 439 1012
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pressoffice@rn.rabobank.nl +31 30 216 2758
About Rabobank Group and Rabobank Food & Agribusiness Research and Advisory
Rabobank Group is a Netherlands based, international financial services provider operating on the basis of cooperative principles with a predominant focus on providing allfinance services in the domestic market. Internationally the Group’s focus is on food and agriculture. In line with its cooperative roots, Rabobank Group is a cooperative bank, comprised of independent local Rabobanks, plus their central organisation Rabobank Nederland and its (international) subsidiaries. The organisation has almost 60,000 employees (fte) worldwide and operates in 48 countries.
Rabobank Group has the highest credit rating of all privately owned banks, awarded by international rating agencies Standard & Poor’s, Moody’s, Fitch and DBRS. In terms of Tier I capital, the organisation is among the top 30 largest financial institutions in the world. Total assets amount to EUR 665 billion and a net profit amounts to EUR 1.9 billion (2011-I).
Internationally, the Rabobank Group operates specialised entities including De Lage Landen (leasing and vendor financing), Robeco Group (asset management), Rabo Real Estate Group (real estate management).
Rabobank Food & Agribusiness Research and Advisory (FAR) is Rabobank’s global F&A Knowledge Provider. FAR comprises a global team of analysts that continuously accumulates knowledge in major F&A sectors, issues and trends.
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