Rabobank flags rising global dairy prices, warns of downside risks ahead
While global dairy commodity prices continue to climb in most key exporting countries, the second half of the year is expected to bring increased downside risks.
Milk production in New Zealand and Australia is particularly strong, on the back of favourable seasonal conditions, with milk flows tracking above last season's levels. Global demand remains patchy, with weak retail sales in the US and several key EU markets.
Earlier this week Fonterra dropped its 2011-12 forecast payout by 15c/kgMS. It says a strong Kiwi dollar and declining commodity prices.
In its March agribusiness review, Rabobank says commodity prices in New Zealand dollar terms weakened by a further 6.5% on average in February on the back of softer international prices.
At the same time the New Zealand dollar firmed 4.5% during the period.
On the international market, strong global supply out of Australia, New Zealand and the US is weighing on dairy commodity prices, it says.
"Milk powders are trading around 20% below the levels seen this time last year, with cheese prices down around 10%," it says.
