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Strong global market fundamentals see Rabobank hold farmgate milk price forecast of NZD 7.15/kgMS

With global dairy market supply and demand fundamentals set to support strong prices for Oceania-origin dairy products over the coming year, Rabobank has held its farmgate milk price forecast of NZD 7.15/kgMS for the 2019/20 season.

In its latest quarterly global dairy report – Dairy Quarterly Q2 2019, Optimism in the midst of chaos, Rabobank says global market fundamentals have remained well-balanced through the first half of 2019, with stagnant milk supply growth, reduced stocks and price stability continuing to be the key themes permeating across the sector.

“Milk production across the ‘big 7’ exporters (the EU, the US, New Zealand, Australia, Uruguay, Argentina and Brazil) in 2019 was below the prior year, allowing markets to find support, and a sharp finish to the milk production seasons in both New Zealand and Australia, coupled with robust China imports, supported Oceania-origin dairy product prices,” said report co-author, Rabobank dairy analyst Emma Higgins.

Ms Higgins says the outlook through the second half of 2019 points to an ongoing challenge to turn the milk production tap on across key exporting regions.

“Milk production across the export engine has stuttered along in the first half of 2019 with negative growth of 0.3 per cent and this has created tension in the global market,” she said

“However, the milk supply tap is slowing being turned on, and in quarter three we expect to see the return of milk supply growth for the ‘Big 7’ exporters with this led by the northern hemisphere producers (the EU and US).”

Importantly for New Zealand producers, Ms Higgins says, the bank’s forecast suggests less milk volumes will be available from the southern hemisphere exporting countries over the second half of 2019.

“We expect Oceania dairy commodity prices to rebound off the back of this once we have moved through our seasonal pricing hiatus period,” she said.

“Overall, we expect to see global milk production growth accelerate through into 2020, however, given the outlook for farmer margins, the rate of growth is forecast to remain below one per cent until quarter two, 2020.”

On the demand side, the report says the landscape in import markets remains a mixed bag.

“Chinese import appetite was stronger than expected through the first four months of 2019, and some buyers are likely to have adequate coverage. We anticipate Chinese demand to remain firm, but lower than in the first half of 2019, which may place a ceiling on price increases,” she said.

“Elsewhere, the US economy is heading for a sizeable slowdown in 2020, while the Eurozone economy has been underperforming since 2018, and that has tempered consumer spending and limited growth in dairy demand.”

New Zealand

The report says New Zealand milk flows have trailed lower for the last few months, with production dropping eight per cent for the penultimate month of the 2018/19 season, compared to the prior year.

“Rabobank now expects full-season production to end with volumes higher by just 1.5 – 2 per cent year-on-year, depending on the magnitude of the decline in May volumes,” Ms Higgins said.

“Despite an underwhelming finish to the season, 2018-19 will most likely be the second-best season recorded on a total volumes basis due to the exceptional supply in the first half.”

Ms Higgins said while milk flows in 2019/20 were expected to drop from this season, a further profitable year was in store for New Zealand dairy farmers.

“We are forecasting that production for the 2019/20 season will be down at least one per cent year-on-year with the near-perfect growing conditions encountered in late 2018 unlikely to be repeated.”

“Despite this, 2019/20 is set to be another season of profitability for New Zealand farmers with the strong opening forecasts from Fonterra and other dairy companies supported by a lower NZD/USD exchange rate which we expect to sit around 0.65 over the coming year.”

What to watch

The report says trade tensions and the worsening African Swine Fever (ASF) outbreak shape as key watch factors in the second half of 2019.

“Trade tensions between the US and a host of trading partners including China, the EU and Mexico continue to contribute to global jitters and have the potential to cause significant disruption to global dairy markets” Ms Higgins said.

“The ASF outbreak in China is another factor which will be closely watched by dairy producers across the globe. The expected 25 to 30 per cent drop in pork production due to ASF could lead to a spike in beef demand, lifting beef prices and accelerating dairy cow culling which would result in lower-than-expected milk production.”

Other key watch factors include the concerns over the global economy, increasing feed bills for dairy producers and buy-side inventory levels.


Rabobank New Zealand is a part of the global Rabobank Group, the world’s leading specialist in food and agribusiness banking. Rabobank has nearly 120 years’ experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank is structured as a cooperative and operates in 40 countries, servicing the needs of about 8.6 million clients worldwide through a network of close to 1000 offices and branches. Rabobank New Zealand is one of the country's leading agricultural lenders and a significant provider of business and corporate banking and financial services to the New Zealand food and agribusiness sector. The bank has 32 branches throughout New Zealand.


Media contacts:

David Johnston
Marketing & Media Relations Manager
Rabobank New Zealand
Phone: 04 819 2711 or 027 477 8153

Denise Shaw
Head of Media Relations 
Rabobank Australia & New Zealand 
Phone: +612 8115 2744 or +61 2 439 603 525