Rabobank Dairy Quarterly Q2 2013

Dairy prices will continue their retreat from record highs over the next year, but will not fall sharply, Rabobank said, warning of only a slow recovery in New Zealand milk output, which will leave the US as the only exporter able to raise shipments for now.

After the bubble: supply growth to deflate, but not puncture, international prices

Key highlights:

• International dairy prices reached record highs in April, before the market blew off some steam in early June.

• Seldom has a price rally appeared so supply-side driven as this one - with significant falls in milk production in both export and import regions shorting the market despite very weak demand conditions.

• International prices will drift down over 2H 2013, as buyers are pushed to the sidelines, stocks are drawn down wherever possible, and supply starts to improve.

• However, the relatively low level of stocks to draw on, delays in supply response and the need for sidelined buyers to return to the market before too long will delay and soften full price adjustment.

• While 1H 2014 should bring a stronger supply response and a large bounce in export product availability, this looks more like relief from extreme shortages than an evolving glut: with prices to bottom out at a reasonably high level.

• Having been left behind somewhat in the market run up, US market prices will hold up better through 2H 2013 as more product is shifted to export to fill gaps left by dwindling Oceania supply, before improving local supply brings lower prices in 1H 2014.

Prepared by the bank’s Food & Agribusiness Research and Advisory division, the Rabobank Dairy Quarterly report provides an update on dairy production and consumption trends in key global markets.

To view the full report, please click here.