International Dairy Prices Begin To Recover

GLOBAL - The beginning of a global economic recovery is having a positive impact on international dairy prices, according to the Rabobank Dairy Quarterly report. However, while prices are beginning to improve, potential roadblocks remain.
calendar icon 24 September 2009
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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, says report author and Rabobank analyst Tim Hunt.

“Economic growth has exceeded expectation in some key economies in recent months. The result of this is that demand has continued to improve. The Whole Milk Powder (WMP) market in particular has been squeezed. We have seen a sharp jump in Chinese imports, alongside firm buying in key North African and Middle Eastern markets resulting in increasing consumption in those countries,” Hunt says.

“US dairy commodity prices have in fact jumped 20 to 30 per cent this quarter, the first significant rise since the crisis. While some of this price rise can be contributed to the softening of the US dollar itself, the rest has been a combination of increasing demand and falling retail prices,” says the dairy analyst.

Dairy imports improve

The Rabobank report says that import buying has started to improve with international trade rising six percent above the same time last year.

“Buying from North Africa and the Middle East is reported to remain strong, with Russia entering the market again and Japan showing signs of stabilisation,” says Hunt.

“But China remains the key engine for recent growth in import demand. The combination of cheap import prices and a switch to safer imported product continues to fuel powder imports, with Chinese buying accounting for at least 75 per cent of the increase in WMP trade growth in this quarter,” says the analyst.

On the supply side, despite milk production stagnating in most of the major milk export regions, hopes of a supply reduction are yet to be fulfilled.

“Brazil is so far the only region to significantly reduce milk production, some countries are yet to reduce milk supply at all, and others are showing disconcerting signs of actually expanding,” says Hunt.

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