Rabobank Global Dairy Quarterly Q3 2017: The Export Engine Warms Up

Global markets remain well balanced, and as a result global prices have exhibited a period of relative stability in the past quarter. However, higher farmgate milk prices have been the major catalyst for a supply-side response, and the export engine is again producing more milk, according the latest RaboResearch Dairy Quarterly report.

“Global dairy markets remained buoyant into Q3 2017, be it with an ongoing theme of a record price spread between dairy fat and protein,” according to Michael Harvey, RaboResearch Senior Analyst – Dairy. “The outlook for commodity markets is for a balanced market to continue. Milk production across the export regions is revving up, and the pace will accelerate in the coming months, largely led by the imminent Oceania spring flush.” However, sustained buying from China should prevent the market from being overwhelmed in the closing months of 2017.

Regional dairy markets
Despite ongoing issues in some key regions, the milk production growth rate is at its healthiest since 2016. Butter prices continue to shine, and milk prices are still improving.

The industry has now had a run of more than 40 months of consecutive milk supply growth and this is set to continue, albeit with regional variance.

New Zealand
Very wet weather across most parts of New Zealand has set challenging conditions for the start of the 2017/18 season. Provided conditions improve, we still expect strong milk production for the 2017/18 season.

Promotional activity is getting a positive consumption response. Coupled with weaker production, import purchasing has picked up strongly as anticipated, and this trend is expected to continue into 2018, albeit at a lower rate.

South America
A more solid rebound in milk production is underway across South America. The scenario for dairy consumption is less optimistic, given economic headwinds.

In Q3 2017, Australia milk production will have returned to growth, following seven quarters of consecutive declines. The 2017/18 season is forecast to deliver 2.5% growth, supported by improving farm profitability and favourable seasonal conditions.

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