14 June 2016

2 minute read

When exactly prices will rise, depends on factors of demand growth and stock depletion, the experts said. World milk supply has already started to react to the low prices.

"For more than 14 months the world has faced a dairy economic crisis, where farm returns are 10 per cent or more percentage below the average margin. This arose among others from the dairy crisis in 2012 and the dairy price boom phase in 2013/2014," summarised Torsten Hemme, Managing Director of IFCN.

Now the farms are surviving by adjusting cash flow, and very often maintenance and investments are postponed to buffer the negative income on farms.

"Farms are small operations. Therefore they are now starting to look for risk management tools, to diversify the risks. And we have to follow and support this development," stated Anders Fagerberg, chairman of the IFCN Board during a conference workshop.

With about 70 dairy experts of the global IFCN Researcher Network from over 40 countries, the question of what will happen in the future in dairy markets was discussed.

Analysis of the world milk supply, based on IFCN researchers' estimates, shows that supply will grow by 1.5 per cent in 2016. This is substantially lower than 2015 (+1.8 per cent) and 2014 (+3.2 per cent).

Milk demand is also an influencing factor. Milk demand growth in 2015 is estimated by IFCN at a level of between 1.8 and 2 per cent. This growth was lower than the long-term average of 2.4 per cent per year from 2006 -2015. For 2016 IFCN estimated milk demand growth at a level of 2 per cent.

What does this mean for market balance? In 2014 and 2015 milk supply exceeded demand and dairy stocks have built up. For 2016, IFCN estimates that on an annual basis milk demand will exceed milk supply. This was not the case in the first 5 month but is expected to occur later in 2016.

But what about milk prices? Torsten Hemme commented on the prospects for this year: "This depends heavily on the action of the current dairy stock holders. If they keep stocks for a longer time a substantial recovery by the end of 2016 is possible. If stock holders act differently, price recovery will be delayed. But milk price recovery is possible."

TheCattleSite News Desk