May 24, 2011

 

Russian dairy sector to rebound in 2012

 

 

Less costly feed prices are to encourage a bounce back in Russia's milk output next year, thus, halting an increase in imports, US officials said, even as local analysts warned that grain values appeared set for rebound in the short-term.

 

Russia's milk production will rise 1.5% in 2012 to 31.7 million tonnes, recovering from levels depressed by the knock-on effects of last year's drought, which devastated both crop harvests and pasture, USDA attaches in Moscow said.

 

As of March, feed availability per cow was 30% than a year before, fuelling a decline in the dairy herd which, as of the end of 2010, depressed Russia's cow herd to 9,000 head, down by more than one-half in 15 years.

 

"Continued improvements in productivity as well as increased feed availability should increase fluid milk production in 2012," the attaches said, noting the improved productivity at bigger dairy enterprises, in which foreign giants such as US-based PepsiCo and France's Danone are investing.

 

However, Russian grain consumers face a revival in prices for now, analysts said, depending on prospects for a resumption of exports, and given that rumours of huge inventories appear to have been overplayed.

 

Moscow-based analysis group SovEcon said "The probability that the wheat market may become stronger is high in our opinion.

 

"The main drivers of this are stocks, which appear to be lower than many market players believe, and a possibility of export resumption in one form or another." Rival group, the Institute for Agricultural Market Studies, said "If any sign encouraging exporters appears, domestic grain prices will follow an optimistic upside trend."

 

Domestic prices have been softer than many observers expected so far this spring, thanks in part to talk of far bigger-than-expected inventories, a weakness which farm operator Black Earth Farming revealed on Friday (May 20) had substantially widened its losses.

 

The USDA attaches forecast that the Russian herd of cows in milk, which stood at 21,000 head on the collapse of the Soviet Union, would continue to decline this year, to 8.82 million animals, as feed prices continue to bite, slowing to only a marginal decrease in 2012.

 

However, the jump in imports will slow, as production revives. Imports of skim milk powder, which soared 71% to 180,000 tonnes last year due to the downturn in domestic dairy production, will edge higher to reach 190,000 tonnes in 2012.

 

Butter imports, set to jump 19.2% to 130,000 tonnes this year, will fall back to 115,000 tonnes in 2012.

 

The prospects of a recovery in Russia's domestic dairy output has, with factors including strong late-season New Zealand production, been cited as a reason for a decline in prices at auctions run by Fonterra, the world's top milk exporter.

 

Prices fell at the latest event, last week, to a four-month low, with milk fat and skim milk powder leading the decline.