Global dairy prices will remain weak in 2016, but the outlook for 2017 is more positive, according to a Rabobank report.
Consumption in developing markets has failed to live up to expectations, and a price bounceback will largely depend on Europe.
In EU countries, where milk quotas were scrapped in April 2015, stronger than predicted production has contributed to a growing stock of milk reserves. Despite what the report describes as a “cripplingly long price trough” for EU farmers this year, many have continued to increase output to generate cashflow.
The continued increases, with production levels now 3.4 percent higher than this time last year, means milk profits have fallen below the break-even level for most EU farmers. The high reserve level could draw out any price recovery, even if low costs do eventually drive farmers to cut production and reduce costs, the report predicts.
In rest of the world, conditions appear to support price growth as weather conditions and low prices push down production. Demand is predicted to increase in Asia, the US and Europe. Meanwhile, with weak exports and a strong dollar, US milk output should remain flat in 2016, and in Argentina and Brazil economic conditions have already pushed down production. Feed shortages have also caused production declines in Australia.
The report also recognises a positive correlation between oil and milk prices, which it says means stronger oil returns would put upward pressure on dairy prices.
Last October, Rabobank’s report Q3 report predicted that the removal of EU quotas and depreciation of the euro “could lead to greater surplus growth in the EU than we currently forecast”.