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Rabobank sees stable dairy prices for now

NZN 7/04/2017 Rebecca Howard

Rabobank is expecting prices for dairy commodities to remain broadly stable at least until the second half of 2017.

But it notes "hesitation" in the market as the uncertain outlook for production, foreign exchange markets and stocks fuels short-term volatility.

The specialist agricultural lender noted that a steep decline in production in the second half of last year had led to a significant price rally but "as we move into 2017, the upward movement of prices has run its course, as milk production levels start to recover against still weak demand."

However, while the fall in production around the world steadily reduces, Rabobank does not expect to see growth in global milk production and any increase in export surpluses until the second half of 2017.

Looking ahead, it says key factors to watch for include the French presidential elections, beginning May 23, and German federal elections on September 24 as they could move exchange rates.

Any weakening of the euro will increase the competitiveness of European exports, it said.

The triggering of Article 50 of the Lisbon Treaty, removing the UK from the European Union could also give rise to currency risk.

It notes the effect of the new US administration's policies on the US economy are still emerging.

Regarding specific milk producing regions, Rabobank expects EU production to continue to catch up on 2016 "but exceeding last year's peak production level would still be a challenge."

It forecasts cumulative production for the first half of this year will remain 1 per cent behind 2016. However, it expects second half production to exceed that of 2016 by 1.5 per cent.

It now expects New Zealand's current full-season productions levels to finish just down 2 per cent from the previous season. Its full-year production forecast for the 2017/18 season (June to May) predicts a 2 per cent increase in production.

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