© Dairy Crest
The global dairy market outlook will remain weak throughout 2016 but with more upward pressure on prices towards the end of the year, according to the latest quarterly report from Rabobank.
“Global dairy commodity prices have continued to stumble along a market floor largely determined by the level of EU intervention support,” the Dutch banking group said. It added that the short-term outlook remains pessimistic while production growth in the world’s milk production regions has continued to slow.
But despite this, “the news is by no means all bad for the dairy industry,” according to Rabobank global dairy strategist Kevin Bellamy.
“With the exception of Brazil – gripped by the worst recession in a generation – Rabobank sees dairy consumption continuing to grow in Asia, as well as in the US and EU.”
Rabobank expects that, throughout 2016, slowing production growth will be matched by slow but steady consumption growth in most main export regions. In Europe, low farmgate prices will mean production growth will slow as farmers focus more on cost-saving than expansion. However, while European production growth will moderate, production levels will not fall, requiring the world market to find a new pricing balance.
Production for 2015/16 will be higher in New Zealand than expected due to increased summer rainfall. US farmgate prices are likely to move down in response to weakening trade balance and growth in inventories. Worse-than-expected production in the second half of 2015 has led us to a cut in Rabobank’s production forecast for China for 2016, while production continues to contract in Argentina and Brazil, as very high feed costs keep farmers’ margins under intense pressure.
The current season will be mostly break-even for Australian producers, while margins will also be tight, Rabobank added.
According to Belfast-based Greenfields Ireland, the return of a market balance will lead to an increase in prices, making now the “perfect time for food manufacturers in Europe to lock into a fixed-price deal for their dairy ingredients using a long-term pricing model”.
“Do this today, and it will be possible to benefit from low prices and insulate your business from the extreme price volatility that’s been a characteristic of the European dairy ingredients market over the past decade,” said Ian Thomas, managing director of Greenfields Ingredients, the UK division of Greenfields Ireland.
“For companies in the bakery, confectionery and ready meals categories, who often use large volumes of dairy ingredients, this is an opportunity that’s simply too good to miss. Wait too long, however, and it could be too late. Intervention by the European Commission will take excess supplies of milk out of the market, and product prices will soon start to creep up.”
© FoodBev Media Ltd 2024