Flat outlook for milk prices?

The August for globalDairyTrade occurs this week with results reported Wednesday morning NZ time.  At MyFarm we are picking a relatively flat result with the milk price forecast of $6.60 to $6.70/kgMS to remain.

All information points to that fact that demand continues to be relatively strong, driven by the growing asian middle classes.  The questions is what is happening with supply?

EU milk production continues to decline due to difficult economics - milk prices are subdued and feed prices are well above historical levels (though lower than 2008/09).  Year to date production is 0.7% lower than for the same period in 2009.

US production is recovering however, with production year to date 0.8% higher with June production up by 2.4% on June 2010.  Milk prices are relatively strong at around US$16 per hundredweight (cwt) of milk (45kg of milk) compared to recent times at below $12 per cwt.  Just as importantly feed costs have also fallen. 

A good measure of the relative health of the US dairy industry is to note the margin above feed costs.  In the boom of 2008 the margin was more than $15/cwt, in 2009 it fell to just over $3/cwt - currently the margin is approximately $7/cwt - a price at which moderate expansion has occured in the past.

On the fringes Latin America is experiencing some supply growth and the Indian dairy industry has enjoyed much better conditions in 2010.

As reported by the US Federal Reserve Chairman, Ben Bernanke, economic times are "unusually uncertain".  The same applies to dairy commodity prices but never-the-less, "little change" is the likely outlook for the coming months.