Falling China demand sees dairy prices fall by 10% in three months
“Unfortunately for sellers, it looks like Chinese buyers may have bought considerably ahead of their requirements in 1H 2014,” states the report.
“Frenetic import buying by processors in the opening four months of the year left local players with a significant stock accumulation by April.
“This appears to have enabled buyers to ease back on procurement in the international market in recent months — which will show up in Chinese import data from June onwards.”
The bank’s latest quarterly report compared a 17.5% rise in New Zealand dairy output versus the same period in drought-impacted 2013. Rabo is predicting New Zealand volumes to trend well above the previous year through Q2 and Q3 2014 due to higher milk flows providing additional volume to be shipped during the seasonal trough versus 2013.
“US wholesale prices have slipped considerably less than those in the external market,” Rabobank’s report notes.
“They are in many cases at a significant premium to the world market in mid June and are expected to fall faster than elsewhere through 2H as exports fall back and domestic milk production picks up.”
The bank is also predicting increased milk exports in the coming months from Australia, Brazil and Argentina.
Rabobank analyst Tim Hunt projected that milk production growth will slow considerably in the second half of 2014 as lower prices are passed to producers, weather normalises and comparables become tougher to exceed. Consumption in export regions will also slowly improve on the back of higher incomes, employment growth and falling retail prices.
The Rabo report notes that one upside risk to keep an eye on is a developing El Nino event. This has the potential to generate unusually dry conditions in south-east Australia and excessive rainfall in Argentina — and the possibility of reduced milk production in both of these export regions.
