Rabobank: Weaker Demand Slows Milk Price Recovery

GLOBAL - Since August the global milk price recovery has carried into the fourth quarter of the year although not strongly, market analysts have reported in the Rabobank Quarterly Dairy Report.
calendar icon 14 December 2012
clock icon 3 minute read

The first global decrease in milk supply since early 2010 impacted causing upwards pressure on prices. The failure of this reduction in milk to create bigger price rises points towards consumption being lower and larger buyers having saved stocks to cater for future requirements, according to Rabobank.

Through the first half of 2013 production levels are forecast to fall in major exporting countries and this, Rabobank has predicted, will cause the market to tighten further. This appears likely because a slight increase in demand is also expected. Buyer inventories should offer protection from this initially.

New Zealand

Following a good dairy season with export volumes for the three month period up to November stepping 15 per cent over 2011 levels (23,000 tonnes) the outlook for New Zealand is cautious. While milk production has remained higher for longer than expected Rabobank have said matching the exceptional prior-year comparables will become more difficult beyond Christmas.

The gap between rising feed costs and milk prices is widening in New Zealand and the ideal 2012 dairy season weather is not guaranteed in 2013 with many farms already enduring below average soil moisture.

Fonterra increased farmgate prices by 4.8 per cent on forecasted values for 2012/13 up to NZ$ 5.5/kg MS.


Wet weather in Victoria has been linked to production increases falling below predicted levels. Although welcomed, farmgate price rises have not been enough to go up above last year's prices and compete with energy (carbon tax) and feed cost rises.

The southern export region has remained an intense milk trading area and Rabobank have predicted that improving commodity prices will help deliver farmers 12 months of A$5.00/kg MS which for many will only cover cost of production.

July to October 2012 saw 252,000 tonnes of milk exported, an incerase on 2.8 per cent last year.


Prices averaged 6 per cent lower in October and were dominated by high feed costs. Production dropped due to impacts rainy seasons in the central and south west regions. Indicators have suggested a moderate production increase year on year for November as pastures are recovering due to rainfall.

Imports went up 6 per cent in October and November because milk shortage influenced local wholesale prices. Like Argentina, Brazilian farmers are calling for imports from Uruguay to be regulated which will be controlled with a new agreement dictating quotas for Braizial milk powder imports.

The outlook is pointing towards further tightening of supplies with higher labour costs expected to register from January as well as seasonal decreases.


Farmgate prices have been steady despite inflation and a poor exchange rate. Torrential spring rain lowered milk output year on year although growth for the year is anticipated to increase two per cent due to strong production from January until November.

Farmers and processors alike are hindered by fiscal issues. International price recovery may help farmers' margins but inflation and poor exchange rates have considerable impacts on the country.

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