November 20, 2010

 

Milk prices to stand firm on eastern demand

Dairy farmers can expect to see milk prices remain strong in the medium term on demand surge from Russia, China and India, according to the latest Rabobank reports.

 

Without this eastern demand, however, higher prices are less certain, said Rabobank's senior dairy analyst Marina Rebello.

 

Recent Rabobank reports predict prices of 25c to 26c per litre for the short to medium future.

 

Longer-term price predictions will depend on how western-block producers access emerging eastern markets.

 

The appeal of the emerging markets meant the dairy sectors in the US, New Zealand and industry leaders were edging towards a new regulatory environment, Rebello said.

 

"It is worth noting that the shifts in the global dairy industry are challenging highly regulated dairy industries to consider their options," she added.

 

"In the Northern Hemisphere, the structural increase in the price of dairy commodities and inputs is impacting the efficacy of industry support measures in the US and EU, and highlighting the costs of imperfect engagement with the world market.

 

"Despite strong farm lobbying during the global financial crisis, it appears that the EU dairy industry will stick to a path of reduced regulation in the coming years. Quotas are scheduled to expire in 2015, with no apparent move to raise intervention support levels which these days provide a market floor well below production costs."

 

The US dairy industry faces a less certain future in the short term, because its looser regulatory structure has left it more exposed to the world market. Rebello notes, however, that America's regulations and industry structure are also making it hard for the nation's dairy sector to extract full value from its milk surplus.

 

The has given it less capacity to insulate itself from international market forces in downturns, and price support levels that are now below costs of production.

 

However, with the appeal of eastern markets, US regulatory change is beginning to seem inevitable. The questions that EU dairy farmers are asking themselves is what form those changes will take, and how the new regulations will impact upon global market prices, she added.