Rabobank sees less money for dairy farmer

Worldwide, the growth of the milk pool continues, it appears 'Dairy update April 2018' from Rabobank. Only in South America does it appear that the milk supply trend has not yet been determined. The bank notes that animal feed costs are increasing, which is partly caused by drought.

In South American Argentina, the above could even lead to the lowest soy yield in 6 years. Both Brazil and Uruguay are affected by this. On the other hand, there is a somewhat increasing demand.

New Zealand unique
The only country that does not put more milk on the market is New Zealand. The forecast for the 2017/2018 season is -1%. This is because drought has had an impact on forage extraction, which means that the selection and drying of the cows will probably start earlier. It also makes the country vulnerable to the weather at the start of the 2018 season. 

In the other major milk-producing regions, growth will continue, but dairy farmers will probably benefit less. The pressure is palpable, especially in the United States (US), and the number of slaughters is increasing. What also does not help are the developments between Trump and China and declining sales to Mexico. To make a profit on the extra liters of milk, the Americans desperately need these countries.

It's not all roses and moonshine in Europe either. As a consequence of the skimmed milk powder in intervention Protein prices are under pressure. Due to the poor value, this is a product that is at the bottom of the list to produce. It puts pressure on the prices of cheese and whole milk powder, something that producers automatically experience when capacity is available. In the first quarter, 'the Russian bear' helped dampen milk production, where the fragile balance was preserved.

Stagnation in growth of EU milk pool
Rabobank predicts a potential plus of 2,2% for the second quarter, after which growth will stagnate and then turn into a decline in the fourth quarter. The arguments: lower margins and a high supply towards the end of 2017. The bank does not comment on the development of the butter price. They do see a more stable milk price for the second quarter compared to the first quarter. 

If the Dutch scenario is then looked at, the bank expects 2,5% less milk. This is due to the limited possibility of keeping fewer young cattle and the 10% skimming off of traded rights. An increase in production per cow is discouraged because more rights are required per cow, the bank said.

The predicted decline results in a milk yield of 13,94 million tons; still a supply that belongs in the top 3. Compared to 2017, this means a loss of income of €0,12 billion for dairy farming, if a milk price of €35 per 100 kilos is assumed; the average of the first 2 months of 2018. Bottom line, it will be a year that is comparable (in terms of income) to 2014, but it will be a less bad year compared to 2015 and 2016.

Milk price dominant
Unlike 2014, this year everything depends on the milk price, because the phosphate rights (and their availability) hinder the compensation of a low milk price with more milk. The bank says: "The introduction of the phosphate rights means that dairy farmers with a monthly surplus of cattle may have to remove cattle later in the year. It is wise for dairy farmers to now consider how many cattle they want to keep this year and determine how the for this necessary rights obtained An addition is that it must also be taken into account whether more or less milk will be produced per cow.

The global economy is growing cautiously and that is positive, but on the other hand the playing field is still relatively unsettled. It is also not a given that low margins directly translate into less milk; something illustrated by the US, where the margin has been minimal/disappeared for several months. The weather and feed prices are much more decisive. The prospects are not bad, but the market is still balancing on a tightrope that is not thick enough to make big bets.

*Source Rabobank