Rabobank is projecting “extremely strong, emerging [global dairy] supply constraints that are likely to exert significant upward pressure on international prices in Quarter 1, 2011.”
The reason: Drought conditions in New Zealand that will result in a 5% to 15% drop in milk production in the second half of the Kiwi grazing season. These shortfalls should more than offset expected growth from the northern hemisphere.
The good news, then, is that strong export demand will take more U.S. production in the first quarter of 2011, “mitigating downward price pressure…offering some prospect for export-led stabilization of local prices.”
The bad news: “Imperfect linkages between U.S. and world markets, a rising local surplus and further increases in feed cost, Quarter 1 2011 producer margins will likely deteriorate.”
