October 2, 2014

In its latest report Rabobank warns that under the prevailing market conditions, dairy prices will not see any movement toward recovery until possibly the third quarter of 2015, even as prices have fallen to a five-year low.  Because producer’s margins have been protected by low feed costs, and the lag-time in negative market conditions affecting farmgate values, global dairy output has remained high.  In addition, China is in a state of oversupply and its buyers will not likely return to the market until the second half of 2015, making dairy price recovery and a rebalancing of the market unlikely within the next year.  Rabobank’s report indicates that Fonterra may need to cut its prices to producers even further after cutting prices last week to 37% below last season’s record high as Fonterra’s first GlobalDairyTrade auction for October saw another drop of 7.3% marking its lowest point since April 2009.  Output growth in the top seven dairy producers including the EU, Australia, the U.S., and New Zealand is predicted to slow to 1.6% from 2.7% in the second half of 2014, however market dynamics are not expected to change until China needs to rebuild imports and Russia reopens its market to agricultural imports.

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