The report said the global market will “confront a wave of exportable surplus” in coming months, estimated to be 3.2 billion litres higher year-on-year (in liquid milk equivalents) for the six months from October 2017 to March 2018.
Rabobank senior dairy analyst Michael Harvey said the recent growth in global milk supply, which peaked in the last quarter of 2017 with the Oceania spring peak and a return to growth in Europe, was taking its toll on global commodity prices.
Mr Harvey said supply growth “is emerging as the biggest risk for global dairy markets” with the entire dairy complex witnessing weakness.
“Even butterfat prices, which had been defying gravity, have fallen in recent months,” he said.
“However the low stocks of butter and robust demand are expected to support prices well above the five-year average.
“Meanwhile skim milk prices remain depressed, with the closure of the European intervention scheme removing the floor and allowing prices to soften further,” Mr Harvey said.
While there was no immediate end in sight for weak skim milk powder prices, which have dragged the whole milk price lower, the global cheese market had “fared best” with the buoyant importing of cheese in countries such as Japan and China providing support, he said.
Mr Harvey said with pressure expected to build on global commodity prices, the first signs of weaker milk prices had emerged in a number of export regions.
“In Australia, the downward pressure on global prices, together with a stronger currency, has seen Rabobank revise its full-year milk price in southern export regions for 2017/18 to $A5.50/kilogram milk solids, down 0.20/kgms on previous forecasts – but excluding any supplementary payments and market premiums,” he said.
While the growth in global export surpluses was likely to contain global dairy prices through to mid-2018, Mr Harvey said “exportable surpluses are not expected to completely overwhelm global markets, helped by strategies to limit supply growth from processors.”
“China will also play a key role in ensuring global markets remain ‘fairly balanced’, with their import purchasing demand, assisted by lower-than-expected milk supply and some improvements in demand, expected to remain active throughout 2018,” he said.