Rabobank: Tightening milk supply should lead to mid-year price peak
By CAROL RYAN DUMAS
The global milk supply will continue to contract into mid-2013, sustaining continued upward price movement, economists at Rabobank predict.
In its December Dairy Quarterly Report, Rabobank said the slow recovery in international dairy prices that began in August continued into the final quarter of 2012 but failed to gain strong legs.
The fact that the first contraction in milk supply in export regions since August 2010 failed to generate stronger prices suggests weaker consumption and solid forward coverage of import buyers, the report stated.
But the global supply still appears headed for a significant tightening in the first half of 2013. A weak back end to the production season in the Southern Hemisphere is likely to coincide with low production levels through winter in the Northern Hemisphere.
"While current buyer inventories will provide temporary protection from supply shortages, the market will inevitably tighten further if there is even a modest improvement in demand for imports from key buying regions -- which appears highly likely," Rabobank reported
Milk production levels in key export regions is likely to remain below year-ago levels through at least the first quarter of 2013 and are expected to undershoot domestic demand in surplus regions. A substantial reduction in exportable surpluses is expected in early 2013.
"With less new product to go around and limited supply-side stocks in storage, any increase in import requirements in the first half of 2013 will substantially tighten the market," the report stated.
Rabobank expects the market to peak sometime around the middle of the year, with a soft downward cycle in the second half as supply catches up.
For the U.S., Rabobank expects milk supply in the first half of the year to lag year-ago levels. More normal winter and spring weather will factor into part of that lag. In addition, the collapse of U.S. dairy market premiums to the world market will lead to lower milk prices in nearby months, reducing producer profitability.
Weaker supply and some domestic growth will leave the U.S. with reduced supply for the world market in the first half of 2013, with most of the reduction likely to come in powders, the report said.
Rabobank did not return phone calls Monday morning.