January 8, 2014

 

 

Following price hikes resulting from a drought in New Zealand last spring, China's milk production crisis and its insatiable need for milk powder have kept global dairy prices elevated for the past six months.

 

Due to diseased dairy cattle and tighter food safety rules, China's milk shortage resulted in an increase in dairy imports. The country's insatiable need for milk powder has kept global prices for dairy commodities at historic highs over the past six months, according to analysts with HighGround Dairy, a division of Chicago-based brokerage firm, HighGround Trading Group.

 

On December 17, prices for whole milk powder and skim milk powder at the Global Dairy Trade auction were US$4,958 and US$4,868 a tonne, respectively. That compares with US$3,126 and US$3,379 a tonne a year earlier.

 

Year to date through November, China's imports of whole milk powder – at 1.177 billion pounds – are up 48% over the same period in 2012. Its imports of skim milk powder are up 27.7%, for a combined increase in total powder imports of 42.1%, according to statistics from China's Customs agency.

 

China's whole milk and skim milk imports are up 79% and 76%, respectively over 2011. In 2012, China represented a 12.4% share of the world's milk powder trade, nearly double the imports of Algeria, the world's second-largest, imported-powder-consuming country. During the first half of 2013, China's share of milk powder imports rose to 16.7%, more than twice Algeria's share of 6.1%.

 

In the last half of the year, China has likely increased its market share and continues to be the catalyst for the sharp rise in powder prices this year, HighGround reported.

 

China was the fourth-largest importer of all US dairy exports in 2013, valued at US$573 million from January through October – up 65% from the same period in 2012, according to the US Dairy Export Council.

 

HighGround added that China's production challenges and world milk supply suggest global dairy prices will remain high for the foreseeable future.

 

Whole milk prices will remain close to the US$5,000 per tonne level at least through May, and skim milk powder will rise in the spring to a range of US$5,250 a tonne, HighGround forecasts. In addition, all other dairy commodities continue ascending in a run that seems endless into 2014, the analysts stated.

 

The trend saw the average cheese price at the latest Global Dairy Trade auction at US$4,569 a tonne (US$2.07 a pound), compared with US$3,470 a year ago. The average butter price was US$4,051 a tonne (US$1.84 a pound) compared with US$3,765 a tonne in February – the closest year-ago comparable auction. But based on price trends, it appears supplies have not yet balanced with demand and the world has accepted these price points in the short term, they said.