Dairy commodity markets have bottomed out but are not experiencing a turnaround and are likely to move sideways for the coming months, independent dairy consultant Mark Voorbergen told delegates at a conference in Maynooth last week organised by R&H Hall, Barnett-Hall and Precision Liquids.

He said that global milk supply would be the determining factor in increasing prices over the next six to nine months as demand was unlikely to change quickly.

He also maintained that China has the ability to make a huge difference in the global supply-demand balance.

However, due to China currently having large stocks of dairy products caused by speculative buying in 2013 and 2014, it would be the second quarter of next year before they absorb these stocks and start to buy substantial amounts of product again.

On the Russian trade embargo, Voorbergen said: “There are no meaningful signs of political tension easing between Russia and Europe, but there are some internal tensions within Russia due to economic pain, especially in the middle classes, which may change this.”

He does not think that Russia will become self-sufficient by increasing dairy production. “I am positive they will return to EU imports but I do not know when,” he added.

Supplies

Milk supplies in the northern hemisphere are to remain strong for the remainder of the year but Oceania has experienced a modest start to the season, so Europe will be the key region for the global supply-demand situation going forward, Voorbergen maintained.

For 2016, he predicted further supply contraction in Oceania during the second half of their season as well as reduced supply in the first quarter in Europe and the USA. In the first half of 2016, he expects demand to increase in importing countries due to low stocks.

“We have had the worst in terms of prices. The low point was in July and August 2015 but farmers should be prepared for another six to nine months of uncomfortable price levels. Assuming better commodity prices in the second half of 2016, it may take another couple of months before milk prices move,” he said.

Listen to interviews with Mark Voorbergen and Dan Basse in our podcast below:

During his presentation, Dan Basse, president of Chicago-based agricultural research firm AgResource, said that weather was the unknown factor that had the potential to quickly dislocate agricultural markets by reducing supply.

On global grain markets, Basse said: “The world this year has produced record wheat and corn crops, and the soya bean crop could also be a record depending on Brazilian weather. Combined stocks of all three crops will be 500m tonnes for the first time on record. Grain prices will remain mundane into 2016 and beyond.”

He said that demand was also a contributing factor, with world wheat demand slowed since 2011 and now increasing at just 1.1% per year.

Basse pointed out that low grain prices would not be the same issue for all farmers as countries with weak currencies, such as Argentina, Brazil and Russia, will not be as badly affected.

Policy

Downward cycles in price were nothing new in farming, maintained Basse, although he did question current government policy in the USA and EU, with no mechanisms to manage supplies such as safety nets or export enhancements.

Basse said: “The question to politicians is how to sustain farm incomes going forward if they are unprofitable.” He added that as prices for farm commodities decrease, so should the costs of farm inputs, such as pesticides as well as land rent.

In the US, government policy on biofuels helped keep grain prices high until 2013, but since then fracking has had a significant downward impact on oil prices and reduced biofuel use.

Fracking

“There were 51,000 new fracking wells in USA last year which can be easily turned on and off. When oil goes over $55 a barrel they come on. Oil prices will range from $40 to $85 a barrel from now until 2020 as USA becomes energy sufficient,” he said.

In the long term, increasing populations in developing countries such as India, Bangladesh and Nigeria will increase demand, suggested Basse, but with population growth there must also be economic development to make a real impact. The rising population in China made little difference to markets until GDP there was over $3,000 per person, he maintained.

In terms of the Chinese economy, he said that it was not collapsing, but GDP growth in China will slow to 4.5 to 6.5% in the next three to five years compared to 14% in 2007.

More volatility in euro-sterling rate

Markets analyst and adviser Paul Somerville said that increased volatility is to be expected next year in currency markets, particularly in the euro-sterling exchange.

He said that currency markets go in waves and that the euro could spike next year as high as €1 = £0.76 but it would inevitably come down again and at times could be as low as the mid 60s.