Home' NZ Dairy Farmer : July 2011 Contents The Dairyman JULY 2011 43
Despite an elevated currency, firm commodity markets have deliv-
ered southern producers in Australia their second highest farmgate
price of around AUD 5.50/kg MS for 2010/11. This brought a prof-
itable year for most, though not till late in the season. And the impact
of weather disruptions meant milk production was only up 1.3% in
the 3 months to April YOY. Prospects for a strong start to the
2011/12 season look good. Fonterra Australia has announced an
opening price of AUD 4.65/kg MS, the third highest they have ever
delivered. Rabobank expects milk production to rise by around 2%
in 2H 2011, providing a boost to export supply.
Recent months have brought a lull in dairy purchasing.
The global economy hit a softer patch. Q1 GDP figures were
weaker than expected in the US and Japan, with growth decelerating
as anticipated in parts of South East Asia and Brazil.
Demand for dairy is also being tempered by rising prices at retail
and wholesale levels in many regions, particularly where it adds to
pressure applied by rising fuel prices and food price inflation.
Actual sales of dairy products have improved in the west. In the
US, the recovery of takeout expenditure appears to be underpinning
improved cheese sales, more than offsetting ongoing declines in the
liquid milk category. EU companies are reporting marginally
improved sales in a range of markets. In developing regions, compa-
nies have reported more mixed performances. Sales growth has been
strong in Brazil and China, but consumption in parts of South East
Asia was impacted by rising prices and general inflation.
Underlying global demand for dairy will improve. The economic
environment will strengthen further in the west and Russian eco-
nomic activity is also building.
Chinese growth will slow in
response to tightening mone-
tary policy, but not alarmingly
so.Rising dairy prices will
bring stiffening headwinds to
some regions. Companies are
expected to push through price
increases on most products in
regions where it is allowed in
Q3. But the impact of rising
prices on demand may be less
evident than in 2007/08. This time the percentage increases at retail
level are likely to be less shocking, while many of the easiest options
for substitution in ingredient use were taken in the last price boom.
Purchasing activity from the world's milk-deficit regions will
remain central to the market through the second half of 2011.
Russian milk production has improved, but not enough to wipe out
its recent increased need for import supply, while Chinese milk pro-
duction growth is still struggling to keep up with rising demand.
After a frenetic stock build through the opening 3 months of the
year, and reduced purchasing through Q2, import-buying from China
and Russia is likely to move closer in line with prior-year levels
through 2H 2011 -- underpinning a stabilisation of import demand.
While exportable supply growth is expected to slow in coming
months in response to rising feed costs, dry conditions in the EU and
improving consumption at point of origin, a modest increase in
exportable supply is likely for H2.
This brings the distinct possibility of some further softening of
prices in international trade through the back half of the year: though
this may be delayed until Q4 when the Southern Hemisphere milk
production season gathers momentum.
However, the extent of any downward price movement is likely to
be limited: as many buyers that have been squeezed out of the mar-
ket by high pricing through recent months are likely to re-enter the
market should product become even modestly more affordable.
Figure 3: 7
Note: Includes NZ, EU, US, Australia , Argentina, Uruguay and Brazil
Source: Rabobank, national statistical agencies
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