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Rabobank: Rising supply of milk weighs on sentiment

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Pressure will continue to build in global dairy market, according to the latest RaboResearch report “Dairy Quarterly Q4 2017: Rising Tide of Milk Weighs on Sentiment.” The pressure, the report said, is due to waning global market sentiment in Q3 2017, as growth in the exportable surpluses across the export regions gained momentum. The growth will continue to expand in the coming period, Rabobank added.

“Growth in milk supply—which turned positive in Q2 2017—accelerated in Q3 2017, but the growth in the exportable surpluses has not come without its challenges,” said Michael Harvey, senior analyst of dairy at Rabobank. In particular, the Oceania spring peak has stumbled due to unfavorable weather conditions. “Growth in the global exportable dairy surpluses will continue to expand in the coming period, pressuring global markets.”

Meanwhile, geopolitical tensions and dairy policy uncertainty are contributing to the weaker market sentiment and remain key factors to monitor. “Attention is now squarely fixed on production trends in Europe in the coming six months,” the report noted.

Growth in production is expanding, but milk price signals and efforts to curb production loom as disruptors. Meanwhile, the report said a tinkering of the intervention scheme next season may see an increase in milk diverted to cheese and whole milk powder production in Europe.

However, Rabobank does not expect exportable surpluses to completely overwhelm global markets—helped by strategies to limit supply growth from processors.

As expected, China’s robust import program has continued in the past few months, assisted by lower-than-expected milk supply and some improvements in demand.

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