Commodity Strategy - Asia Pacific Dairy Prices To Remain Supported In Coming Quarters - AUG 2017


BMI View: Dairy prices in Asia Pacific will remain supported in the second half of 2017 and in 2018 but we believe most of the upside in prices is now behind us. Global production will be stronger in the 2017/18 season, following a couple years of production declines in key supplying markets, especially in New Zealand. Although China ' s import demand will be stronger in the coming quarters, it will not be enough to significantly increase global consumption.

Dairy prices in Asia Pacific (APAC), as measured by Fonterra's GlobalDairyTrade auction prices, will remain supported in the second half of 2017 and in 2018 but we believe most of the upside in prices is now behind us. Global production will be stronger in the 2017/18 season, following one or two years of declines in key global suppliers. Meanwhile, although we continue to expect China's dairy import demand to be stronger in 2017 and 2018 after a weak 2015 and 2016, it will not be enough to significantly increase global consumption.

Global dairy supply tightened over 2016 and the first half of 2017 and as a result whole milk prices rallied by 50% over the past 12 months, reaching USD3,111/tonne at the latest auction held on July 4th. However, we are unlikely to see further tightening in the coming quarters. Looking at production, we forecast milk output in some key producers to start recovering in the 2017/18 season after a couple years of production declines.

Prices Remain Supported In 2017
Whole Milk Powder - GlobalDairyTrade Average Winning Prices (USD/tonne & % chg y-o-y)
Source: BMI, GlobalDairyTrade

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