There's more milk in the world than the market currently needs

The world is still producing more milk than the market needs today, says Rabobank in its quarterly report on the dairy sector. And, for the Dutch Bank, this imbalance should not be substantially fixed in the second half of this year, which means still low prices on the international market.
According to forecasts, the growth should accelerate in major exporting regions in the second half (high of 1.6% in comparison with the same range of 2014), once the production in the European Union is being driven by programmed investments due to the termination of the production quota regime, at the end of last March, offsetting the slowdown in supply in most regions with surplus of raw material.
The Bank's report shows that after a slight contraction in the first half, the exportable surplus of the world's seven largest suppliers should grow again in the second half, with estimated advance 1.6% on the same period in 2014.
But, according to Rabobank, will be hard put even this relatively modest increase in the surplus on the international market. That's because imports from China and Russia should continue to be weak and buyers from other regions with supply deficit may reduce the pace of its purchases, as they filled their stocks with cheap product. "With inventories already high us importers, we now see a considerable risk of build-up of inventories in the supply side (the exporters) in the second half," the report says.
For analysts at Rabobank international milk prices should remain "extremely low" while the market tries to "clean up" the offer and or put in product stocks, which led to the intervention by the European Union in the case of skimmed milk.
In the EU, according to the report, the growth in production of milk must overcome the marginal increase in demand. Thus, the exportable balance should rise 7 percent in the second half of this year and 12% in the first quarter of 2016, compared to the previous year.
The expectation, says the Bank, is that recovery milk prices start in the first half of next year. In the assessment of the institution, the market for "new" (i.e. excluding stocks) will approach the balance at the beginning of 2016. " While milk production will continue to grow, the surplus generated is likely to be consumed by the improvement in demand, since consumers respond to the increase in revenue and reduced prices, and purchases of China finally grow above prior year levels.
The report notes that the impact on prices will be initially mitigated by the need to dump the stocks accumulated, but the expectation is of a high period stronger prices in the second quarter of 2016 when the stocks return to more normal levels.
In the document, the Rabobank highlights the factors that can influence so bullish or the milk market bassist. Among the influences are intense upward climate issues. For the Bank, if the El Nino climate pattern continue in the next few months there's a increasing risk (though not certain) that can lead to climatic adversities in milk producing regions (for example, drought in Southeast Australia or excessive rains in the North of Argentina), affecting the offer.
Moreover, Chinese imports can be higher in the second half if local stocks are smaller than believed or if supply grow less than the analysts believe.
On the side of the influences bassists, the Bank points out the end of the quota regime of milk production in the EU combined with the depreciation of the euro in the past nine months. These two factors could lead to a growth higher than expected surplus in the EU — the current projection of over 2.3 billion liters of milk in the next 12 months. In addition, there is some risk of importers — not included here Russia and China — reduce purchases in the second half (in comparison with an equal range of 2014) for having accumulated significant stocks in the last 12 months.
In the projections of Rabobank, considering data from the u.s. Department of agriculture (USDA), the integral milk powder prices should reach $ 2,500 per ton in the fourth quarter of this year and $ 2,900 in the first quarter of 2016. In the second quarter of this year, stood at $ 2,490, well below the $ 4,150 of the same range of 2014.