Milk production from countries with the highest export volume has sensibly decreased, from the 2,6 million tons of the second half of 2016, especially milk stocks coming from Oceania and Europe. Moreover, if we take into account the fact that internal demand in the United States and Europe has been growing more and more strong, it is easy to see how available inventories for export are dwindling (four and a half million tons) and, as a consequence, we are seeing an increase in milk prices on a global scale (up over 45% during the second half of this year).
Demand is growing the most for products such as cheeses and butter. Consequently, demand for butyric fat matter will lead the market and weight heavily on it, at least according to the quarterly report by Rabobank relative to third quarter of 2016.
According to Rabobank’s Kevin Bellamy, “Milk production all over the world, during the second half of this year, seemed to be in very bad shape. European production grew stronger, not only thanks to low prices, but also in reaction to efforts coming from European aids (ability to remove a million tons of milk from the market). Meanwhile, we see poor production from Oceania, with New Zealand far away from last year’s 6% production level”.
Key elements of Robobank quarterly report
Various scenarios with various interpretations can be extrapolated from Robobank’s quarterly report: the current rise in prices will be followed by a further increase; at the same time, milk offer in all regions will not grow overnight, in spite of better prices for milk. We will have to wait at least till mid-2017 in order to see an actual recovery of production and available inventories for export; China will aggressively enter the international market, with a forecasted 20% increase of imports. However, an additional increase in US Dollar’s strength, combined with higher prices for raw material, might be able to also favor other importing regions who may play a key role.