Higher dairy commodity prices in 2013 are “all but inevitable”, but price hikes are likely to be less dramatic and will happen later in the year than previously expected, new forecasts from Rabobank suggest.
Dairy prices are predicted to rise this year because milk production in key regions is set to stagnate or be lower than in previous years. European dairy farmers are struggling to recover from difficult weather conditions and soaring input costs in 2012, while US farmers have been scaling back on production because of lower milk prices and reduced profitability, according to the bank.
Key exporting countries such as New Zealand are also forecast to produce less than in 2012, making global dairy markets highly vulnerable to price rises if demand increases by even just a fraction.
New year, old faces in our commodities tracker. Cocoa butter continues to dominate our key risers, with prices up 93.3% year-on-year and up 6.2% in the past month. Butter prices remain high because of reduced cocoa grindings across Europe and North America.
Sluggish demand and good supply have resulted in cotton prices falling for much of the past 12 months. They remain nearly 20% down year-on-year, even though prices have edged up 3.1% month-on-month.
Meanwhile, weak demand and good production have caused palm kernel oil prices to fall by 46.4% in the past year and 8.5% month-on-month. However, prices could move up soon, amid rising concerns about weather problems in key Malaysian production areas.
However, while global supplies had started tightening during the second half of 2012, prices had not risen by as much as anticipated. This suggested dairy consumption was weaker than expected and key import buyers had “solid forward coverage”, said Tim Hunt, Rabobank food and agribusiness research and advisory global dairy strategist.
Price rises that had been expected for early 2013 were now likely to be delayed until the end of the first quarter, and they could prove “less extreme than envisaged three months prior”.
Despite this possible delay, Hunt warned that global dairy commodities were likely to follow an upward pricing trajectory this year.
“While consumption is likely to continue to grow at a slow pace into 2013, current forward coverage will provide only temporary insulation for buyers from what we anticipate will be a worsening supply-side situation,” he said. “As such, the fundamentals still point towards a market tightening.”