September 22, 2010

Rebound in China's milk price looms amid jump in output

China's efforts to ramp up its domestic dairy industry have cast a cloud over milk prices.

Abare, Australia's commodities bureau, forecast dairy prices would in 2010-11 build on their recovery of the previous year, if remaining well below late-2007 highs, when cheese prices hit US$5,500 a tonnes.

Abare analysts said growth in global demand, particularly in Asia, the Middle East and North Africa, is expected to support prices, if being offset in part by rising production.

The country's whole milk powder imports near-quadrupled to 176,000 tonnes last year, equivalent to 12% of world trade in the commodity, after the scandal over dairy products contaminated with melamine, a toxic substance which artificially increases milk's protein count, depressed demand for domestic supplies.

Imports are expected to continue growing for the rest of 2011, taking total purchases for the calendar year to about 200,000 tonnes. However, China's milk production is beginning to recover from the sharp decline in 2008 and farmers are likely to rebuild herds, Abare said. Further growth in milk production in 2011 may reduced the demand for imported milk powders.

The comments come days after New Zealand-based Fonterra, the world's biggest dairy exporter, revealed that it was in the final stages of acquiring two further dairy farms in China from government ownership.

The revival in Russian demand for dairy products had also been reflected in higher cheese imports, which were set to reach 340,000 tonnes in 2010, sourced largely from Europe.