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NEW YORK, June 25, 2014 /PRNewswire/ -- As anticipated, global dairy prices softened considerably through Q2. According to Rabobank's Dairy Quarterly Q2: Beyond the tipping point, prices fell as a result of improved milk production in export regions and the easing of forward purchasing by China. These mechanisms freed more product for other buyers and lowered the need to ration demand with international dairy commodity prices falling 10% to 20% in the three months to mid-June.
"The pull back in Chinese purchasing has been particularly significant, with evidence that the Chinese industry has accumulated excess inventories after a period of vigorous buying, improved local milk production and weaker local sales. Current prices in the international market have dropped below what we see as sustainable in the medium term," explained Rabobank analyst Tim Hunt.
Milk production growth will slow considerably in the second half of 2014 as lower prices are passed to producers, weather normalizes and comparables become tougher to exceed. Consumption in export regions will also slowly improve on the back of higher incomes, employment growth and falling retail prices.
"Together these forces should gradually tighten up the market as we progress through 2014," continued Hunt. "However, we expect little improvement in prices until late in 2014 or early 2015, as China works through its accumulated stocks and the world continues to consume the stronger than expected wave of milk produced in the first half of the year."
The report notes that one upside risk to keep an eye on is a developing El Nino event. This has the potential to generate unusually dry conditions in South East Australia and excessive rainfall in Argentina – and hence reduced milk production in both of these export regions.
Rabobank Group is a global financial services leader providing wholesale and retail banking, leasing, real estate services, and renewable energy project financing. Founded over a century ago, Rabobank is one of the largest banks in the world, with nearly $1 trillion in assets and operations in more than 40 countries. In North America, Rabobank is a premier bank to the food, beverage and agribusiness industry. Rabobank's Food & Agribusiness Research and Advisory team is comprised of more than 80 analysts around the world who provide expert analysis, insight and counsel to Rabobank clients about trends, issues and developments in all sectors of agriculture. www.rabobank.com/f&a
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