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Global dairy prices peaked, says Rabobank

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October 06, 2017

Australian milk production is expected to start growing again.

Global dairy markets remain buoyant, however concrete signs of sustained supply growth from major exporters suggest global prices have peaked in the current cycle, according to Rabobank’s latest Global Dairy Quarterly.

The report says while milk production across the export regions is revving up, and the pace will accelerate in the coming months, rejuvenated import-purchasing from Chinese buyers should prevent the market from being overwhelmed in coming months.

“Higher farmgate milk prices in most export regions has been the catalyst for a supply-side response, so we are again seeing the export engine produce more milk,” says Rabobank senior dairy analyst Michael Harvey.

Given the strength in global commodity markets, Rabobank has revised up its forecast for Australian full-year milk prices in the southern export regions to between AUD5.70/kgMS and AUD6.10kg/MS.

Mr Harvey says while the Oceania spring peak looms large, and Australia and New Zealand are on-track to increase production, China is expected to absorb much of this increase as an active buyer – at least in the short-term.

“Chinese buyers have been increasingly active in recent months as their domestic milk production fails to keep up with demand,” he says, “and this is a trend that is expected to continue into 2018 – albeit, at a lower rate.”

The record price spread between dairy fat and protein is also set to remain a key feature of the global dairy complex in coming months, he says.

“The Oceania spring flush is unlikely to provide the solution to the global fat shortage,” he says, “given that other product streams remain a priority.

“As such, we don’t see much downside pressure on global dairy prices until early 2018, when the Northern Hemisphere ramps up their milk supply.”

Australian milk production is forecast to increase in 2017/18 by a modest 2.5 per cent, as local farmers continue to rebuild herds. With milk production set to expand at a pace above local consumption growth rates, Australia’s exportable surplus (particularly of butter and cheese) is expected to increase throughout the season.

Dairy product prices have unexpectedly declined at Fonterra's GlobalDairyTrade auction, falling for the fifth time in eight auctions, amid confidence in ample supply.

The GDT price index fell 2.4 per cent from the previous auction two weeks ago and the average price to $US3223 ($NZ4503) per tonne.

Some 37,990 tonnes of product was sold at the October 3 auction, up from 34,117 tonnes at the previous auction.

"The NZX Dairy Derivatives market had anticipated a strong lift in prices ..., particularly for whole milk powder, with plenty of trading activity occurring early this week," AgriHQ dairy analyst Susan Kilsby said."New Zealand milk production has had a slow start this season, and it appeared that the market was finally taking note of this. But this did not appear in auction results."

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