September 29, 2011

Global dairy consumption may falter

Mounting risks of another global recession imply that dairy consumption may soon waver, according to Commonwealth Bank of Australia analyst, Luke Mathews.

He noted falls in demand during the last economic crisis. Between 2007 and 2009, world consumption of fluid milk fell 2.8%, of whole milk powder by 2.8% and of cheese by nearly 2%.

The decline reversed a spike in prices, with values halving from early-2008 highs before recovering most lost ground. Indeed, prices doubled, halved, then near-doubled again within four years.

The current deteriorated economic outlook "presents a substantial risk to dairy prices", Mathews said.

The comments came amid renewed weakness in grain markets on Wednesday (Sep 28), as hopes for a solution to the eurozone debt crisis waned on talk of discord between member countries.

They followed signs of some weakness in orders by key dairy importers, with Russian purchases of New Zealand butter continuing to fall in July, taking the decline for the first seven months of 2011 to 37%.

China's imports of whole milk powder last month were, at 12,377 tonnes, down 42% on-year, according to Global Trade Information Services.

However, the short-term "headwinds" to consumption for dairy products "won't spoil the long-term story" of rising demand, Mathews said.

"Despite the near-term uncertainty regarding global dairy consumption, we consider the medium/longer term demand outlook particularly strong, driven by emerging market demand, most notably in China," he said.