November 28, 2008

World dairy outlook dim for 2009, but long term fundamentals positive

The global financial crisis could keep world dairy markets depressed for most of 2009, but long-term drivers should increase demand by 2010, according to the US Dairy Export Council (USDEC).


Based on the outlook, US suppliers should redouble efforts to focus on customer service and meeting product specifications, said the USDEC.


The economy slowdown and credit crunch came at a moment when global milk supplies were on the rebound, said Matt McKnight, USDEC vice-president of export ingredient marketing and industry affairs.


"First we saw consumer spending slow this year due to strong inflation. As a result inventories increased. Then the credit freeze made it difficult for companies to finance existing stocks and to finance new purchases, so buying slowed dramatically," McKnight said.


However, population growth and urbanisation will continue to drive global dairy consumption, and buyers will return to the market once consumer demand picks up again, he said.


New Zealand, Australia, Argentina, Brazil and the EU are ready to increase dairy exports next year due to higher output, said Ted Jacoby III, vice president of cheese sales and risk management for T.C. Jacoby & Co.


In the first half of 2009, global dairy prices are likely to go much lower than expected, said Deborah Perkins, managing director of Rabobank International's Food & Agribusiness Research and Advisory group.


Demand is expected to recover as retail price inflation slows, economic-stimulus packages take effect and credit becomes available to companies.


Low-cost producers from New Zealand, Australia and South America face constraints that will limit their ability to meet the demand growth, indicating that the market have to attract higher-cost supply and commodity prices have to return to a higher trading band, said Perkins.


Perkins said export-oriented suppliers have to foster relationships with customers to keep hold of their market share.


Perkins also said buyers don't want to terminate relationships with US suppliers because US products will be in need again in a year or two, and US exports in 2010 could easily return to 2008 levels.

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