July 12, 2007


Argentina woes help high global dairy prices


While a drought in Australia and associated downturn in dairy production helped fire a sharp rally in global prices in 2007, the situation in Argentina now appears to be fanning the flames, according to an analysis issued late Wednesday (Jul 11) by Rabobank Australia Ltd.


A dry summer in Argentina was followed by flooding in March, and high corn prices have discouraged use as feed for dairy cows and encouraged the diversion of resources to crop production, Rabobank said in a monthly review.


Argentine milk production fell as a result, resulting in a slump in dairy product exports of 56 percent in May, it said.


Those looking for increased supply from Oceania to help fill this product gap will be encouraged by higher prices for milk - which usually fuels increased supply - offered in Australia and New Zealand, two major global dairy exporters, Rabobank commented.


However, the ability of exporters to increase supply remains modest in those two nations, while enthusiasm of farmers in the US and Latin America to lift supply will be tempered by high feed grain prices.


"As a result, demand remains the more likely balancing item in the global market in the short term as the rise in international prices is gradually passed on to consumers," the company added.


Global dairy product prices have soared this year, with Rabobank saying that "in a stunning extension of the recent bull run, the rate of ascension of international dairy prices accelerated in June," with butter and cheese prices rising about 25 percent in the month.


Marketing concern Dairy Australia Ltd. has reported soaring global dairy product prices this calendar year, with butter prices, FOB Melbourne, rising to a range of US$2,500-2,800/tonne in the week ending Friday from US$1,750-1,980/tonne late last year. Skim milk powder prices jumped to US$4,600-5,000/tonne last week from US$2,700-2,900/tonne late last year, and cheddar prices were quoted at US$3,600-3,900/tonne from US$2,700-2,870/tonne over the same period.


Rabobank said most Australian dairy farmers face an excellent season following significant rainfall in June.


However, key challenges include negotiating fodder shortages through the winter following last year's drought and for irrigators, planning a season without any certainty of irrigation water availability, it said.