Global Dairy Trade: Commodity prices increase fourth time in a row
After ten consecutive drops in the average Global Dairy Trade auction, the last four have resulted in a 63% increase, albeit on lower trade volumes. The recent increases are a positive sign of the market recovery. A comment from Nikolai Porkov, Business Intelligence and Strategic Input at DeLaval International AB.
The recent increases are a positive sign of the market recovery. Fonterra has lately revised the 2015/16 farm gate milk price to NZD $4.60 per kilo of milk solids. Driven by somewhat smaller herds, decrease in supplementary feeding and a poor start of the new season, milk production in New Zealand is expected to fall 5% to 10% in 2015/16. This is also contributing to continued current upward trend in milk prices, as New Zealand is the biggest dairy exporter.
On a positive note, the feed prices are still low in most regions and they are predicted to stay on an attractively low level until the end of 2015 and into 2016 – providing a meaningful cushion for the fall in milk revenues for dairy farmers.
Global milk production started to gradually ease in Q3 reacting to the farm gate milk prices being below the cost of production in many regions. Milk prices are now at levels that are unsustainable in the long run. According to the latest Rabobank Dairy Report, “pricing pressure (in 2016) will build as 1H progresses - from modest in the later stages of Q1 to significant late in Q2."
In Q2 2016 we will see the combined effect of China increasing its imports again and supply growth in most export regions slowing down. This could provide an additional support to milk prices in 2016.
The latest severe downturn in milk prices does not mean there has been astructural shift in the marketplace. In medium term market fundamentals should support dairy demand expansion, solid trade growth, constraints onsupply and high, but volatile milk pricing.
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