The dairy price rollercoaster is poised for a "substantial"
upturn, giving a "rude awakening" to buyers, as the setbacks of poor weather
and high grain prices turn the taps off on milk production growth.
Dairy prices, as measured by whole milk powder for export
from Australasia, are in the first half of next year to hit the "higher end" of
a forecast range of $3,200-3,800 a tonne, with even higher values "entirely
plausible", Rabobank said.
The forecast, which suggests a rise of roughly 20% from
current levels, reflects the a slowdown "to a trickle" in milk production
growth in major exporting countries "as farmers respond to low milk prices,
high feed costs and pockets of unfavourable weather".
Already European Union and US production is on the decline,
with anecdotal evidence pointing to a drop in Argentine output too, in contrast
with the strong start to 2012 for output which all top exporters enjoyed.
Chinese orders soar
Meanwhile, demand, while remaining sluggish in Western
countries, is holding up "well" in emerging markets, and indeed had drained dairy
product inventories built up earlier in the year.
"The bright light for dairy producers, and a fulcrum for
recent price recovery on world markets, has been the ongoing strength of import
demand," Rabobank said.
"Trade emanating from the Big Seven export regions rose by 18%
in the three months to July."
While this included an element of opportunistic buying, to
exploit low prices, major purchasing regions such as China and the Middle East "face
ongoing local production constraints, and high local milk costs continue to
favour supplying additional demand with imported product".
Customs data show China's imports of whole milk powder topping
43,000 tonnes in August, a five-month high, and in a period when imports are
usually slowing before a build-up late in the year heading into spring.
'False sense of
The result of the supply squeeze was that prices are poised "to
rise substantially in the international market in order to bring about the
demand rationing needed to balance the market".
"The global dairy market appears headed for a period of
renewed supply scarcity in the coming 12 months.
"We fear that much of the market has been lulled into a
false sense of security by the phenomenal [production] growth seasons we saw in
late 2011 and early 2012 – with the next 12 months most likely providing a rude
The comments follow a rebound of more than one-quarter
already in dairy prices, as measured by a GlobalDairyTrade auction index, from
a mid-May low, when values fell to their lowest in nearly three years.
Indeed, the global dairy market, having seen relatively
stable price growth up to 2007, has been rocked since by two cycles of soaring
and slumping values.
Whole milk powder sold at an average of $3,036 a tonne at
the latest GlobalDairyTrade auction, last week, nearly $500 a tonne above its