Rabobank: Rising supply of milk weighs on sentiment

Geopolitical tensions and dairy policy uncertainty contributing to weaker market sentiment.

Pressure will continue to build in the global dairy market, according to “Dairy Quarterly Q4 2017: Rising Tide of Milk Weighs on Sentiment,” the latest report from RaboResearch. The pressure, the report said, is due to waning global market sentiment in the third quarter of 2017 as growth in exportable surpluses across the export regions gained momentum. The growth will continue to expand in the coming period, Rabobank added.

While growth in the milk supply turned positive in the second quarter of 2017 and accelerated in the third quarter, "the growth in the exportable surpluses has not come without its challenges,” said Michael Harvey, senior analyst of dairy at Rabobank. In particular, the Oceania spring peak has stumbled due to unfavorable weather conditions. “Growth in the global exportable dairy surpluses will continue to expand in the coming period, pressuring global markets,” Harvey added.

Meanwhile, geopolitical tensions and dairy policy uncertainty are contributing to the weaker market sentiment and remain key factors to monitor. “Attention is now squarely fixed on production trends in Europe in the coming six months,” the report noted.

Growth in production is expanding, but milk price signals and efforts to curb production loom as disruptors. Meanwhile, the report said an adjustment to the intervention scheme next season may lead to an increase in milk diverted to cheese and whole milk powder production in Europe.

However, Rabobank does not expect exportable surpluses to completely overwhelm global markets — helped by strategies to limit supply growth from processors.

As expected, China’s robust import program has continued in the past few months, assisted by lower-than-expected milk supply and some improvements in demand.

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