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Rabobank forecasts low dairy prices for next 12 months

Rabobank analysts are forecasting a protracted period of low prices in international and regional dairy markets and a substantial fall in the US market by early 2015.

Dairy markets are in for a bearish ride over the next 12 months with falling prices exacerbated by a pullback in Chinese buying on the international market and Russia's ban on imports from key suppliers, Rabobank analysts report in their most recent quarterly dairy report.

International dairy prices softened considerably in the second quarter in response to higher milk output. But the decline became disorderly in the third quarter when a strong wave of milk from export regions collided with the weaker Chinese demand and Russia's ban. With other importers unable to take up the slack, the market loosened considerably, Rabobank reported.

The Big 7 export countries increased milk supply a total of 4.3% in the three months to July, while demand for additional milk in surplus regions remained weak and export surpluses continued to build.

Chinese import buying could be down 75% year over year in the second half of 2014, and buying from both China and Russia are likely to be weak until the third quarter of 2015, the bank reported.

A lack of US milk supply growth earlier in the year — due to a cold winter, regional feed quality problems and producers' desire to pay down debt — combined with strong exports to support strong prices, Rabobank reported.

The analysts expect growth in global milk supply to slow over the next 12 months. The rate of slowdown, however, will be affected by farm milk prices that remain high in many regions, the removal of EU quotas in April 2015 and a significant decline in feed costs.

International and regional prices are expected to begin recovering in the third quarter of 2015 with China's return to the market and the assumed reopening of the Russian market, the analysts stated.


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