Global dairy market headed for ‘supply scarcity’ repeat - Rabobank

By Mark Astley

- Last updated on GMT

Global dairy market headed for ‘supply scarcity’ repeat - Rabobank

Related tags Global dairy market Milk Dairy Rabobank

The global dairy market appears to be headed into another period of milk “supply scarcity” in the next 12 months as production growth begins to slow in the world’s major export regions, Rabobank has claimed.

It has forecasted a reduction in the exportable surplus available from the ‘Big Seven’ export regions – the European Union (EU), US, Australia, New Zealand, Brazil, Argentina and Uruguay – in the final quarter of 2012 and first half of 2013.

According to its report, Q3 Global Dairy Industry – The Return of Milk Scarcity,​ this will be the first reduction in export surplus in four years.

Rabobank has attributed its forecasted export region production growth slowdown to the impact of low milk prices, extreme feed costs and unfavourable weather conditions.

Export surplus reduction

“As we enter Q4, we are concerned that the world is heading for another period of supply scarcity over the next 12 months, despite the lacklustre economic context,” ​said the Rabobank report.

“While international market prices are starting to creep up, pricing remains will short of the levels required to reinvigorate milk production growth in the face of feed costs that will remain at extreme highs for the best part of the coming year.”

Adverse weather conditions in the US and Western Europe further impacted yields and returns. Milk production in the ‘Big Seven’ regions had been expanding at nearly 4% in March and April 2012 in year-on-year terms. By July this had fallen to just 1%.

“Key surplus regions will consume little additional milk over the next 12 months. But supply will likely undershoot even these modest requirements, generating the first reduction in exportable surpluses seen in four years,” ​the report said.

Supply versus demand

The report added that while production will slow, import demand is expected to expand in the next six months.

Economic growth in China, South East Asia, the Middle East and North Africa are expected to experience growth at a slower during this time, but dairy consumption will increase with rising employment and income.

The relative cost and safety of importing dairy products versus procuring it locally will also add to demand for imported products in these developing markets.

“The biggest question on the demand side of the global dairy market is whether importers will continue to seek out increased volumes from the international traded market through the coming six months,” ​the Rabobank report added.

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