Rabobank expects slight increase in European milk price

The export possibilities and price developments for European basic dairy products are also changing Rabobank optimistic. Although the price of milk fat in the European Union is under continued pressure, the price of skimmed milk powder has recovered from the deep trough of 2018.

The price level of basic dairy products has normalized somewhat. This is after the prices of butter and skimmed milk powder experienced an opposite and unusual development from 2016, when the European Union intervened in the market: the price for butter peaked and the price for skimmed milk powder fell.

Milk production in the Netherlands
Despite the optimistic milk price forecast, Rabobank warns that liquidity developments continue to require attention. The current margins make it impossible to create buffers and there is still a threat of a roughage shortage. No increase in Dutch milk production is therefore expected. In the first quarter of 2019, 3,2% less was produced than in the same period last year, resulting in 112 million liters less supply. Milk production was also 2,5% below last year's level in May.

Only the decline in French milk production (-2%) made even more of a difference in terms of milk supply in the first quarter of this year (133 million liters). In contrast to the decreased milk production in the Netherlands and France, there is a significant increase in Irish milk production (8,6% to 96 million liters). Also the milk production in Poland carries a lot of weight. In the first quarter, this country produced 113 million liters (3,9%) more than in the same period last year.

Drought in Australia
On the global market, the effect of the drought in Australia is particularly striking. Compared to the first quarter of 2018, milk production decreased by 11,1% (230 million liters). The decline in production is the result of the extreme drought in the country, especially in key milk-producing states in the south-east (such as Victoria).

In addition to the sharp decline in Australian milk production, the decreased milk production in Argentina (-8,3%) and the flattened growth in the United States also played an important role. The latter only achieved a plus of 2019% in the first quarter of 0,1. The volume effect of this percentage shows how much difference the American milk pool can make: 28 million liters. The decline in the American livestock population is the main reason for the lost growth in milk production.

Effect of African swine fever in China
Despite the trade wars and Brexit, there is still some optimism at Rabobank about the development of the milk price in the second half of 2019. This is not yet due to the side effects of the outbreak of African swine fever in China. The massive slaughter of pigs in the country has significantly reduced demand for American whey products and lactose for pig feed.

Rabobank therefore believes it is still too early to state that, following the example of European pig farming, European dairy farming will also benefit from the dramatic developments regarding African swine fever in China.