World dairy prices on recovery but obstacles remain

International dairy prices are riding on the back of the recovering global economic, but potential roadblocks remain, according to the Rabobank Dairy Quarterly report.

The recent price support has come from a combination of tighter fundamentals for new production and a shift in sentiment as the market finally reached a clear turning point, said Rabobank analyst Tim Hunt.

Economic growth in some key economies has exceeded expectations in recent months, which resulted in an ongoing demand improvement. The Whole Milk Powder (WMP) market in particular was squeezed, and there were sharp increases in Chinese imports, alongside strong purchases in key North African and Middle Eastern markets, Hunt said.

US dairy commodity prices have jumped 20 to 30 percent this quarter, the first significant rise since the crisis, due to rising demand and falling retail prices and to a smaller extent, the weakening of the US dollar, he said.

International dairy trade has also increased six percent on-year, with Russia entering the market again and Japan showing signs of stabilisation, Hunt said.

But China remains the key driver behind the sharp increase in import demand. Cheap import prices and a want for safer imported product continue to fuel powder imports, with China accounting for at least 75 percent of WMP trade growth in the quarter. 

Hunt noted that Brazil is so far the only region to significantly reduce milk production, while others have either not reduced output yet or are actually expanding.