Higher farmgate prices and more favourable weather conditions are providing much-needed relief for the world’s dairy farmers after a three-year decline in milk values.
Farmgate prices in the US continue to track well above the prices in Europe and Oceania, spurred on by local demand and, thanks to a slightly weaker US dollar, firmer export trade.
Said Kevin Bellamy, Rabobank Global Dairy Head: “We expect, given continuing good margins over feed, that milk production in the US will continue to grow and that, after a slight stumble in Q1 2017, US consumption of butter and cheese will also continue to drive solid domestic demand growth.”
Average farmgate prices in Europe moved up at the end of 2016, but have remained at only mildly interesting levels, leading to varied production responses. Farmers in Ireland, Poland, and Italy have all continued to expand production, with the UK also adding a late production spurt in Q2 2017. However, overall production in Europe has grown more slowly than many expected. Germany and France, the two largest producing states, fell well behind last year’s production levels throughout 1H 2017. With a cold and dry spring limiting production in March and April, and environmental constraints hitting the Netherlands, Europe’s farmers struggled to return to growth.
Continued Bellamy: “The weak production growth in the EU, at a time of year when butterfat levels are naturally depressed, and the strong demand growth in the US have contributed to a global shortage of butterfat, forcing prices of butter and cream to exceptional levels. In the short term, to alleviate the pressure, processors will certainly be tempted to move farmgate prices up to encourage more butterfat supply"
Overall, Rabobank’s outlook suggests that the global production recovery will continue, and the industry will move into a phase of trade expansion which will be needed to supply the steady, if modest, demand growth. The structural increase in demand for butterfat will, however, take longer to resolve, with prices needing to adjust to reflect changing consumption patterns and new long-term incentives needed to encourage the production of more fat. For more visit: rabobank.com
Source: RabobankAuthor: COX