Rabobank Global Dairy Quarterly Q1 2018: Turn the Pressure Down
A robust import programme by Chinese buyers, combined with a weather-impacted New Zealand season, were the perfect ingredients for the short-term rally in Q1 2018. In the background, the export increases, as production growth expanded across all other regions, according to the latest RaboResearch report ‘Dairy Quarterly Q1 2018: Turn the Pressure Down’.
The export engine has been running on most cylinders since mid-2017. However, weather risks have now been extended beyond New Zealand. Europe battled a cold front, Australia had localised bushfires, and there are drought conditions at play in Argentina.
“The peak period of milk production in the Northern Hemisphere still looms as a pressure point for the global market in Q2 2018,” according to Michael Harvey, Senior Analyst – Dairy. “However, Rabobank does not see the Northern Hemisphere peak milk flows completely overwhelming the global market. EU milk production growth started 2018 on a high note, but is also expected to trend lower throughout the year.”
Previous expectations for the extent of pressure on global markets to come in Q2 2018 have moderated, with a global rebalance looming in 2H 2018.
The European Commission does not intend to purchase any skim milk powder (SMP) at the fixed intervention price in 2018, instead focusing on clearing the 375,700 tonnes of intervention SMP stocks, which will continue to pressure SMP prices and likely divert milk solids to other product streams. Farmgate milk prices continue to weaken in Q1 2018 (albeit from a high base), and more downward pressure is expected. Meanwhile, the risk of higher feed prices is emerging.