Abares extended the round of commentators pushing back prospects for the recovery in dairy values – underlining the pressure on values from strong world production, at a time of tepid demand growth.
The official Australian commodities bureau, which had in March forecast the world skim milk powder price recovering to $2,340 a tonne in 2016-17, instead forecast a further fall, to a multi-year low of $1,850 a tonne.
That would represent a drop of 60% over three seasons.
For cheese, Abares slashed its price forecast for average world prices next season by $563 a tonne to $3,100 a tonne.
And for butter, the price forecast was shrunk by $560 a tonne to $2,950 a tonne, again putting a drop in values on the cards, and giving up on ideas of recovery.
“Production growth in major exporting countries is forecast to outstrip consumption growth in major importing countries,” said Abares – which had in March foreseen price support from “firmer demand from China and other developing countries”.
‘More downward pressure’
In fact, for the key milk powder market, the bureau now forecast that “weak Chinese demand [will] continue placing downward pressure on… prices”.
“Chinese demand growth is expected to remain low because stocks accumulated in 2013 and 2014 are still being drawn down.”
Meanwhile, “global supplies of skim and whole milk powders are expected to increase, particularly from the European Union.”
“As a result, downward pressure on milk powder prices is forecast to remain in 2016–17.”
Abares forecast at 1% EU milk production growth next season, despite “lower farmgate milk prices [resulting] in producers delaying expansion plans”, which have been encouraged by last year’s removal of the bloc’s output quotas.
“The size of the EU dairy herd is expected to remain largely unchanged, but growth in milk production is still forecast as a result of increasing milk yields,” the bureau said.
Output in New Zealand, the top dairy exporter, was forecast to “fall again”, but by an unspecified amount, to reflect the shrinkage of 5% in the country’s dairy herd over the past two years.
The bureau also forecast a drop in Australian output, of some 90m litres, to 9.3bn iitres next season – ditching expectations of a rise in production to 9.8bn litres.
“Forecast lower farmgate milk prices and relatively strong saleyard prices for cows are expected to encourage turn-off of less productive dairy cattle,” Abares said.
New Zealand output
The comments represent the latest in a series of comments, from observers ranging from Rabobank and Danone, cautioning against hopes of an 11% rebound in dairy prices from mid-March lows, at GlobalDairyTrade auction, accelerating into a full-blown rally.
The market has also been focusing on expectations for world production, especially in the EU, as well as in New Zealand, which co-operative Fonterra forecast on Friday would see a 3% drop in milk volumes in 2016-17.
New Zealand milk output dropped by 1% in the first 11 months of 2015-16, to April, on Fonterra said.
(Source – http://www.agrimoney.com/news/abares-ditches-hopes-of-dairy-price-revival–9674.html)