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Southern hemisphere farmers will struggle to meet milk demand growth over next five years

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Southern hemisphere farmers will struggle to produce about 20 billion liters of milk needed to feed the world’s demand growth over the next five years according to Rabobank research.

Rabobank dairy analyst Emma Higgins said that most of the extra supply would need to be met by the northern hemisphere.

“Countries like New Zealand will really struggle to be a significant player in providing the additional milk required given they are facing challenges on-farm in the form of increasing compliance costs and tightening regulatory requirements,” she said.

Demand growth would be driven by the emerging markets in Asia and Africa while consumption growth in China would grow at a slower rate as it adjusts to a “new norm.”

“In South East Asia we believe the opportunity lies in Indonesia and Vietnam. We’re picking them to be the growth engines across the next five years,” Higgins said

Commodity prices were expected to trade in a higher range over the coming years, although volatility in the market would remain.

Higgins said it was pleasing to see whole milk powder prices were continuing their recovery, now sitting at more than US$3000 a tonne.

The gap between fats and protein products was at record levels and Higgins explained this spread was due to a weak export engine.

“We are expecting the supply story to change in the second half of the year and into 2018. Europe is the key and we are expecting growth in the second half of 2017 of 1.5 per cent.

Skim milk powder continued to bounce along the bottom in terms of price because of the volume of stock sitting in European warehouses, Higgins said.

Increasing production per cow and technology advances would help New Zealand dairy farmers grow supply albeit at a slower rate.

“We anticipate commodity prices to trade in a higher range but volatility will continue – that is one thing I can guarantee you.”

“Expect to see commodity prices trade in a higher range than the last few years to incentivise additional milk from the lower hemisphere.”

The outlook for 2016-2022 was for dairy demand to increase at over 2 per cent.

“It’s a more positive picture going forward than what we have emerged from,” Higgins said.

Source: Rabobank

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