August 1, 2011

 

Global milk prices face sharp recoil as imports fade

 

 

Diminishing milk demand in importing countries, highlighted by Danone's results, is to accelerate the draw back in prices, warned the National Australia Bank (NAB).

 

The bank said that, while dairy prices were set to "ease modestly over the near term", continuing a fall from near-record highs reached earlier in 2011, they faced a "more steep pull back later in the year".

 

The weakness reflected signs that "growth in importer demand has slowed significantly, particularly in China", NAB agribusiness economist Michael Creed said.

 

The market in Russia, another major milk importer, has also suffered too, with Danone, the dairy giant, on Thursday (Jul 28) reporting that sales volumes at its Moscow-based Unimilk joint venture had slumped by 11.2% in the April-to-June period, as high prices depressed demand.

 

Supply tension will also be eased by the onset of the southern hemisphere spring, which will bring a seasonal jump in production to countries such as New Zealand, the top dairy exporter, as grazing herds are put back out to pasture.

 

From as early as next month dairy prices "should pull back sharply, given solid production expectations in Oceania", Creed said.

 

The comments follow a continuing decline in dairy values, with a price index compiled by globalDairyTrade, the auctions run by New Zealand-based Fonterra, down 20% from its March high to its lowest level of 2011.

 

"Prices for anhydrous milkfat are now below where they were last September," John Kaczor, at the US-based Milk Producers Council, said.

 

And this decline has come against a background of slowing production growth in the US, one of the top exporters of cheese and skim milk powder, thanks largely to dry weather in the south.

 

US output growth, on-year, fell to 1.1% last month from 3.3% in September.

 

"Six states have reported less milk production for three straight months, reflecting in part horrendous weather and its lingering effects," Kaczor said.

 

He added, "More of the same expected for July, should give short-term support for dairy product prices."