But as USDEC forecast earlier, the rally has proven to be more of a correction from prices that went too low this summer rather than a sustained recovery, according to USDEC’s new issue of Global Dairy Market Outlook. Prices remain well below long-term averages and in recent weeks they’ve pulled back again in the face of an oversupplied, buyers’ market.
In this competitive environment, US dairy exports are lagging in 2015. In the first three quarters of 2015, US shipments are down 27% by value and 9% by volume versus the prior year.
The key factors necessary to deliver better market balance – production contraction, inventory reduction, China buying – have yet to materialise.
From April to August, milk production from the top five exporters (EU-28, United States, New Zealand, Australia and Argentina) was up 2.1% versus the prior year – nearly 500,000t of additional milk a month. September production, on the other hand, is estimated to be up only fractionally, but it will take many more months of flat or declining output to rebalance the market.
Among key suppliers, the EU and Australia have been the most aggressive in recent months. In the June-August period, EU exports of milk powder, cheese, butterfat and whey were up 10%. Australia exports were up 17%, while New Zealand exports were flat and the United States was down 20%.
We maintain our view that the global markets, particularly for milk powder and whey-based ingredients, will not move into better balance before the middle of next year. At the closely watched GDT auction on November 3, prices decreased for the second straight time, after gaining 56% in the previous four events. As a signal of current market sentiment, WMP averaged $2453/t and SMP averaged $2018/t. NZX futures for WMP average $2400/t for H1-2016.
Buyers’ pipelines are well filled and they have little urgency to bid prices higher. De-stocking must take place, and we expect that to be a gradual process. We look for prices to roll back further in the months ahead and stay relatively depressed, with some periodic fluctuations reflecting market uncertainty and strategic buying.
