The market balancing later in the year will consequently see some price recovery, although it may take some time, Rabobank wrote its latest Dairy Quarterly.
Tim Hunt, Rabobank's global dairy strategist, explained: “The seeds of an eventual price recovery are now being planted, with producers and consumers finally getting the signal that the world has too much milk and starting to respond to that. But the price recovery itself is unlikely to emerge till late 2015 at best, ensuring a difficult period for many of the world's producers.”
The market saw a fall of 20% and 30% in prices in the three months to mid-June, reversing the rally seen in international dairy prices in the first quarter.
After falling in April, production in key export areas rose due to good weather and the removal of EU quotas.
Rabobank added that buy-side stocks are now large and supply-side stocks are also showing signs of growing.
Price recovery is therefore likely to have been pushed back by at least a quarter compared to March predictions, but Rabobank predicts that things should improve in late 2015/early 2016, due to a period of slow production growth coinciding with the stabilization of Chinese imports and improved consumer demand created by a period of lower retail pricing and ongoing income growth.
Luke Crossman, senior analyst at AHDB Dairy, is, however, less optimistic.
He warned that prices are likely to remain under pressure for some time: “The latest Rabobank Dairy Quarterly report has suggested that a recovery in wholesale prices is unlikely to happen in 2015. Globally milk production is still growing at a higher rate than demand and this imbalance has been forecast to continue into 2016, as demand from China and Russia is expected to remain weak.
“The first half of 2016 is expected to bring some better prospects of price recovery although the more significant increase in prices is unlikely to occur before the second half of the year. If Rabobank’s predictions come into fruition it is unlikely UK farmgate prices will see any major signs of recovery until post-flush 2016. Adverse weather, greater than expected increase in EU post-quota production or under/overestimated China stock figures could all change these forecasts.”