NEW YORK — Ample supplies and weak demand continue to pressure international dairy markets, but the rate of decline in the price of dairy products has slowed from the third quarter, according to Rabobank in its latest Dairy Quarterly report.
Strong growth in milk production over the past nine months and weak consumption trends prompted a drop in prices; however, the low prices have helped clear large volumes, with trade growth up 15% over the prior year.
“Low prices were required to help clear a market still dealing with exceptionally strong supply growth, a rising U.S. dollar, a weak economic environment and reduced buying from China and Russia,” said Tim Hunt, an analyst with Rabobank.
Working through an excess dairy supply, China purchased far less from the international market than it had last year, with incoming shipments down nearly 50% in October over the prior year.
Due to Russia’s enforced ban on imports from key suppliers, global prices have had to decline by 30% to 50% from their peak to encourage buying from second- and third-tier importers, such as Southeast Asia, the Middle East and North Africa, in order to clear the market.
Lower prices have helped prevent accumulation of supply-side stocks, but avoiding oversupply remains a challenge in coming months, depending on how quickly the world’s dairy suppliers respond to recent price cuts. Farmgate milk prices and profit margins for milk producers have held up better than sharply lower prices for some dairy products would suggest, especially in the United States, which may discourage producers from significantly reducing milk production.
Producers in many export regions may slow production in the first half of 2015 to reduce the amount available on the international market, Rabobank said. However, this may not prove sufficient in generating a significant price recovery as demand remains weak, particularly due to reduced purchasing in China and the trade ban in Russia.Rabobank predicts the market will gradually tighten in the second half of 2015, but price recovery and momentum in the market may depend on lower production in the southern hemisphere.