23 September 2009
The beginning of a global economic recovery is having a positive impact on international dairy prices, according to Rabobank’s recently-released Dairy Quarterly report. However, while prices are beginning to improve, there remain potential roadblocks, the report says.
Report author Tim Hunt says that the recent price support had come from a combination of tighter fundamentals for new production and a shift in sentiment as the market finally reached a clear turning point.
"Economic growth has exceeded expectation in some key economies in recent months. The result of this is that demand has continued to improve. The Whole Milk Powder (WMP) market in particular has been squeezed. We have seen a sharp jump in Chinese imports, alongside firm buying in key North African and Middle Eastern markets resulting in increasing consumption in those countries," he says.
"USD dairy commodity prices have in fact jumped 20 to 30 per cent this quarter, the first significant rise since the crisis. While some of this price rise can be contributed to the softening of the USD itself, the rest has been a combination of increasing demand and falling retail prices."
Dairy imports improve
The Rabobank report says that import buying has started to improve with international trade rising six per cent above the same time last year.
"Buying from North Africa and the Middle East is reported to remain strong, with Russia entering the market again and Japan showing signs of stabilisation," says Mr Hunt.
"But China remains the key engine for recent growth in import demand. The combination of cheap import prices and a switch to safer imported product continues to fuel powder imports, with Chinese buying accounting for at least 75 per cent of the increase in WMP trade growth in this quarter."
On the supply side, despite milk production stagnating in most of the major milk export regions, hopes of a supply reduction are yet to be fulfilled.
"Brazil is so far the only region to significantly reduce milk production, some countries are yet to reduce milk supply at all and others are showing disconcerting signs of actually expanding," he says.
Domestic dairy supply
In Australia, after eight months of consecutive growth, milk production fell back again in the three months to July.
"The reduction in national milk production last quarter was almost entirely as a result of reduced production in the irrigated regions of northern Victoria, where water remains scarce," says Mr Hunt.
Farmers have seen some improvements on several fronts in recent weeks, with exporting companies increasing supplier milk prices, grain and fertiliser prices falling, and good rains in several key regions.
But the situation generally remains tight on farm, and extremely difficult in northern Victoria. National milk production is therefore expected to continue to fall modestly for the remainder of the year, with northern Victoria expected to experience double digit declines.
Despite reduced milk supply, Australian exporters continue to benefit from reduced flows from the Northern Hemisphere, with export volumes up 14 per cent this quarter, led by a strong rise in WMP and butterfat.
"In Australia, and indeed globally, most indicators point to further improvements in demand for dairy. However, with restocking likely a temporary phenomenon and economies and retail pricing moving only slowly in the right direction, the growth in buying activity through the balance of 2009 is likely to remain slow. And with large stockpiles still overhanging the market in the Northern Hemisphere, further price increases may be limited over the course of 2009," the Rabobank report says.
Rabobank Australia is a part of the international Rabobank Group, the world’s leading specialist in food and agribusiness banking. Rabobank has more than 110 years’ experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank is structured as a cooperative and has a AAA credit rating from Moody’s and Standard & Poor's. Rabobank operates in 46 countries, servicing the needs of more than nine million clients worldwide through a network of more than 1600 offices and branches. Rabobank Australia is one of the country's leading rural lenders and a significant provider of business and corporate banking and financial services to the Australian food and agribusiness sector. The bank has 53 branches throughout Australia.
Media contact:
Kelly Lund
Public Relations Consultant
Rabobank Australia & New Zealand
(02) 8115 4861 or 0437 677 732
kelly.lund@rabobank.com
Denise Shaw Public Relations Manager
Rabobank Australia & New Zealand
(02) 8115 2744 or 0439 603 525
denise.shaw@rabobank.com