June 21, 2012

 

 

Hot weather conditions in the US, which has already caused higher corn prices and threatened cattle values, could help to prop up the world dairy market, by stemming a rise in US production.

 

FCStone said that dairy prices may have bottomed out, given the resilience seen in the last two sessions.

 

While dairy prices at the latest auction, on Tuesday (June 19), overall eased 0.5%, this retreat gave back only a fraction of the near-14% gained in the previous event, two weeks ago.

 

And prices of some commodities extended their recovery, with whole milk powder, used in products such as yoghurt, and which forms the bulk of globalDairyTrade sales, taking to 11% its gains over the past month.

 

"It is hard to call the bottom, but it seems we have reached that point. It probably is a bottom," FCStone dairy and commodity analyst, David Kurzawski told Agrimoney.com.

 

One factor in stabilising the market has been lower production, which in New Zealand, the top milk exporter, has declined towards a winter low, while in the US is likely to take a hit from hot weather - which tends to depress milk output both from stressing animals in prompting a switch from pasture to lower-quality feed sources.

 

Much of the US is experiencing an unusual dearth of moisture, with 84% of California, the top milk-producing state, rated abnormally dry or in drought, compared with 0.01% a year ago.

 

Kurzawski said, "In the US, it is starting to get real hot in many areas," a factor which can depress production both through animal stress and a turn to less favourable feed for animals forced off pastures.

 

While official data for May showed US milk production rising, on year, the rate of increase, at 2%, was the lowest so far in 2012.

 

"It is seasonally hot in the US, and you have the drying off of cows in Oceania," both factors negative for output, he said.

 

Meanwhile, demand has been better than had been expected this year, "given the economic climate".

 

The USDA recently raised to 8.9 billion pounds its estimate for US dairy exports in this year, and to 9.1 billion pounds for 2013, noting that "first-quarter cheese exports, especially to Mexico, have exceeded earlier forecasts and are likely to remain resilient for the remainder of 2012".

 

However, Kurzawski urged caution over expectations of a rapid rebound in prices, as has happened previously, noting the ability of dairy prices to trade for long periods in narrow prices ranges.

 

US cheese, for instance, has for most of this year traded between US$1.45-1.60 a pound.

 

"We may have reached a situation where there is a better balance between supply and demand," he said.

 

New Zealand-based Agrifax highlighted in Tuesday's globalDairyTrade auction the ability of higher volumes to tip power towards buyers, saying a 3.7% drop in cheddar prices was "most likely a reflection of the higher volumes of cheddar available at this auction".