10 Oct 2016

Stronger dairy prices could last into 2017 - report

9:38 am on 10 October 2016

Global milk production has fallen faster than expected in recent months, with the resulting market rally expected to last into 2017, a new report says.

Dairy Cows

Photo: RNZ Cosmo Kentish-Barnes

Rabobank's latest Dairy Quarterly report said dairy export surpluses were expected to reduce by 3.4 million tonnes year-on-year - more than at any time since the global financial crisis.

Rabobank dairy analyst Emma Higgins said that came at a time when dairy demand in domestic markets has remained firm, with dairy farmers struggling to grow production.

Farmgate prices were rising in most export markets as a result, she said.

"Production is dropping quite quickly out of Europe and that's really helping to put the brakes on global supply."

Poor weather, a low milk price and reduced cow numbers had contributed to lower production in important export regions including the European Union, New Zealand, Australia, China, Argentina and Brazil, Ms Higgins said.

In New Zealand, milk production for the season to date had dropped by about three percent, the report said.

"We expect a drop in milk flows of around one percent for the full New Zealand 2016/17 season, with further downside in milk volumes to come should adverse weather over the milking peak impact further in key dairying regions," it said.

Ms Higgins said the price recovery was being driven by falling supply rather than by demand.

That meant price increases would be limited by still-weak global demand, a significant stock overhang and the strength of the US dollar.