19 Nov 2015

Dairy prices tipped to recover mid-2016

9:10 pm on 19 November 2015

A global dairy expert predicts world dairy prices will not recover until the middle of next year.

Rabobank global dairy strategist Tim Hunt said milk production around the world needed to ease and excess stock needed to clear before demand for dairy would pick up again.

Mr Hunt is based in New York but is currently in New Zealand.

He said low dairy prices were due to a number of factors: China pulling out of the market, Russia banning imports, falls in the US dollar and the European quota being lifted.

The biggest impact has been on New Zealand farmers, he said.

"A particular feature of this downward cycle is that the storm is far worse in New Zealand than anywhere else in the world."

Two factors were needed to rebalance the market, he said.

"We need more of the pain of this downturn to spread to producers in other regions beyond just New Zealand, and we expect that to start to happen in coming months as milk prices fall further in Europe, margins tighten up in the United States, and as Chinese margins tighten also... slowing down supply growth."

In coming months, consumers would see price reductions in dairy products, which should help regenerate demand growth as stock is worked through, he said.

"The stock is primarily held in milk powders, butter and cheese. That stock is most heavy in China, but we also have significant stocks in Europe and the US and also significant stocks in what we'd call second tier import regions... South East Asia, Middle East, North Africa, where we've sold so much product in the last 12 months or so, they really took advantage of low pricing to stock up heavily."

The excess stock was expected to be worked through in six months or so, he said.

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