Where to from here?
The data point increasingly to a market moving from one of shortage to one of surplus. Milk production is moving higher, and sales have started to slow. With whole milk powder prices – the leading indicator for global markets – down about 10% year-over-year in the first quarter, it seems safe to say that the bull-run has come to an end. Anecdotally, slower offtakes from Asia are a commonly cited cause. Either China’s needs have been met, at least for now, or potential buyers have moved to the sidelines waiting for lower prices before restocking.
In any event, “uncommitted” product is starting to emerge and will be used to rebuild depleted inventories. If buyers have enough of what they need with no desire to buy any more at current prices, then it will just take a little excess to quickly pressure prices lower.
However, there are still concerns. While recent rains have eased the situation a bit, California’s drought will limit local forage availability later this year. As producers reach beyond the state to find feed, their costs will go up and those high margins will start to erode. It could easily take until late 2013 before those impacts affect milk production, but it is a concern for producers and end-users alike. Also, the persistent cold and snow across the Midwest and Northeast could mute the usual “spring flush.”