The ‘rising tide of milk’ has seen sentiment in the global dairy industry begin to wane, as growth in exportable surpluses across key milk-producing regions gains momentum, according to Rabobank’s latest Dairy Quarterly report.
The report says the global market will ‘‘confront a wave of exportable surplus’’ in coming months, estimated to be 3.2billion litres higher year-on-year (in liquid milk equivalents) for the six months from October 2017 to March 2018.
‘‘The recent growth in global milk supply, which peaked in the last quarter of 2017 with the Oceania spring peak and a return to growth in Europe, is taking its toll on global commodity prices,’’ Rabobank senior dairy analyst Michael Harvey said.
He said supply growth was ‘‘emerging as the biggest risk for global dairy markets’’ with the entire dairy complex witnessing weakness.
‘‘Even butterfat prices, which had been defying gravity, have fallen in recent months,’’ Mr Harvey said.
‘‘However, the low stocks of butter and robust demand are expected to support prices well above the five-year average.
‘‘Meanwhile skim milk prices remain depressed, with the closure of the European intervention scheme removing the floor and allowing prices to soften further.’’
While there is no immediate end in sight for weak skim milk powder prices, which have dragged the whole milk price lower, Mr Harvey said the global cheese market had ‘‘fared best’’ with the buoyant importing of cheese in countries like Japan and China providing support.
He said with pressure expected to build on global commodity prices, the first signs of weaker milk prices (in local currency) had emerged in a number of export regions.
‘‘In Australia, the downward pressure on global prices, together with a stronger currency, has seen Rabobank revise its full-year milk price in southern export regions for 2017-18 to $5.50/kg MS, down $0.20/kg MS on previous forecasts — but excluding any supplementary payments and market premiums.’’
While the growth in global exportable surpluses is likely to place pressure on global dairy through to the middle of 2018, Mr Harvey said exportable surpluses were ‘‘not expected to completely overwhelm global markets, helped by strategies to limit supply growth from processors’’.
‘‘China will also play a key role in ensuring global markets remain ‘fairly balanced’, with their import purchasing demand, assisted by lower-than-expected milk supply and some improvements in demand, expected to remain active throughout 2018.’’
Mr Harvey said there was unlikely to be a smooth recalibration of the dairy complex, however, Rabobank was forecasting a gradual tightening of exportable supplies through the second half of 2018.
‘‘Much will hinge on production trends in Europe, and while supply growth is set to continue, an easing of milk prices and efforts to contain supply growth in some regions is likely to constrain growth.’’
He said policy interventions in the EU would be a key ‘watch factor’ in 2018, as well as the risk of a US exit from NAFTA and geopolitical tensions — all could create volatility in global dairy markets.
He said improving milk prices and favourable seasonal conditions were starting to flow into a recovery in Australian production and exports, with national milk production forecast to increase by 2.7 per cent in the 2017-18 season.
‘‘With most of the growth coming from the southern export regions, particularly Victoria, the good reserve of high-quality fodder, good soil moisture and high water entitlement for irrigators is boding well for a strong shoulder and solid finish to the season.’’
Mr Harvey said Australia’s exportable surplus had contracted significantly over the past 18 months, and it was ‘‘only now that the benefit of improving milk supply will start to drive a recovery in exportable surpluses’’.
‘‘In export markets, while demand growth is starting to moderate following a period of robust growth, dairy demand in emerging economies appears to be strong, with robust import purchasing in key deficit regions, including South-East Asia.’’