(New York, NY) — Despite a recent rally in dairy commodity prices, up from January lows, Rabobank’s Q1 2015 report on the dairy industry finds that suppliers are not out of the woods yet.
“We have passed through the worst for dairy market fundamentals, but things aren’t likely to be as tight through mid-year as the market is currently factoring,” says Rabobank global dairy strategist Tim Hunt.
Rabobank said that global prices remained lifeless through the first half of Q1, before a surprisingly vigorous bounce in mid-February. By mid-March, whole milk powder (WMP) prices were up 42% over mid-December levels, with butter and skim milk powder (SMP) up 20% (cheese remained largely unmoved).
Rabobank notes the strength of the recent rally is hard to justify based on current fundamentals.
New Zealand experienced a dry period in February/March, while tighter margins and penalties for exceeding quotas have brought an end to a wave of milk supply growth in the EU. But the supply tap remains on in the U.S., there is little improvement in demand in key surplus regions, and China and Russia are leading the first demand-driven contraction in international trade since the 2009 financial crisis.
“In the nearer term, we consider some loss of pricing entirely possible,” notes Hunt. “Unfortunately for suppliers, the market is likely to want to deliver the signal to restrain production growth as we progress through the middle of the year.”