Experts predict tightening milk supply
Rabobank says prices will rise with higher export demand
By CAROL RYAN DUMAS
Low milk prices, extreme feed costs and pockets of unfavorable weather are expected to slow growth in milk production to a trickle in the world's export regions, according to Rabobank's food and agribusiness advisory group.
"The global market appears headed for a period of renewed supply scarcity in the coming 12 months," Rabobank said in its quarterly dairy report released last week.
Only modest growth in consumption is expected, but the slowdown in milk production will reduce exportable surplus from the "Big 7" region -- the European Union, U.S., Australia, New Zealand, Brazil, Argentina and Uruguay -- in the closing months of 2012 and the first half of 2013.
"With little excess inventory in the market, the equation then becomes simple: any increase in import demand from deficit regions will create supply shortages, and the extent of shortages will rise with the appetite for imports," the report said.
While the economies of China, Southeast Asia and Middle Eastern/North Africa will move at a slower pace than their five-year average, incomes will still show growth, employment will rise, consumers will buy more dairy, and imports will continue, according to Rabobank.
"The bright light for dairy producers, and the fulcrum for recent price recovery on world markets, has been the ongoing strength of import demand," the report said.
Factoring in modest planned increases in imports over the next 12 months by key buying regions, Rabobank expects prices to rise substantially in the international market.
Falling milk production in the U.S. and the E.U. has already driven up local wholesale prices, and those prices will see less upside support in coming months until international prices move into alignment in the first half of 2013, Rabobank reported.
USDA is forecasting a U.S. all milk price for 2013 at $17.85 to $18.85, and raised the September all milk price to $17.80 to $18. Its September Class III price was raised to $16.75 to $16.95 per hundredweight, and the forecast for 2013 is $16.70 to $17.70.
With 2013 U.S. milk production expected to be smaller than 2012, price estimates by the Livestock Marketing Information Center are brighter. LMIC expects the 2013 all milk price to average $20.50 to $23 per hundredweight, with Class III prices close to a record high at $19.75 to $21.25.
"If herd reductions come more quickly, milk prices could easily be higher," LMIC stated in its mid-September market analysis.
It also forecast record-high prices in the first half of 2014, followed by possible weakening as herd reduction ends. But even if the national herd begins to increase, it will take several quarters to reach the point where year-over-year gains are made, the analysis stated.
LMIC is forecasting a 2014 all milk price of $22.75 to $24.75 per hundredweight, with a Class III price of $21.50 to $23.50.
"However, downside risk is much more probable in 2014, if 2013 prices are greater than predicted," the September analysis stated.
With a normal feedstuff crop, dairy farmers should be profitable, however, and their financial positions should notably improve compared with 2012, it added.
Beyond 2014, preliminary forecasts indicate a return to increasing supply, based on herd growth and increases in milk per cow. Export markets could continue to absorb that growth, but if surprisingly large milk output occurs, milk prices could collapse quickly, the analysis stated.