Dairy Price Warning, as China`s Milk Imports Halve

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Publish time: 29th November, 2011      Source: Agrimoney.com
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National Australia Bank warned of a further drop in milk prices, and "considerable pressure" on dairy farmers'' margins, as data showed a halving in milk powder imports by China.

Dairy prices, which have fallen for seven consecutive months, are "to continue falling", with the decline from their peak to approach 20% by next June, NAB agribusiness economist Michael Creed said.

"The peak in the recent cycle in dairy prices has well and truly passed," Mr Creed said.

"Dairy market fundamentals point to further price falls through the year

Supply vs demand

The forecast reflected in part the rise in production across major producing countriesflagged by Agrimoney.com on Thursday, but most notably including a 13% rise in output in New Zealand, the top exporter, early in 2011-12.

"Conditions in [New Zealand and Australia], who make up almost half of all global dairy exports, favour a solid production outlook."

However, Mr Creed also highlighted pullbacks in demand from major customers, including Russia, whose buy-ins have "slowed through 2011", and China.

"While a considerable exportable surplus has been building up in the big exporters, demand has not," he said.

Imports slump

Indeed, separate data from Global Trade Information Services showed China''s whole milk powder imports tumbling by more than one-half, year on year, below 10,000 tonnes in October.

While an improvement of some 2,000 tonnes month on month, the rate of decline was steeper than seen in September, when China''s whole milk powder imports hit their lowest for nearly three years.

Thanks to a strong start to the year, imports so far in 2011 remain ahead of those a year before. But the rate of increase narrowed to 7% for the first 10 months of the year, from 13% as of September.

Margin pressure

Mr Creed added that the dairy market dynamics, at a time when feed prices "remain restrictive", boded ill for farmers'' margin.

In the US, the ratio of milk prices to feed costs was some 30% below its 10-year average, "suggesting producer margins are coming under considerable pressure" even before the forecast further falls in dairy values.

"This could entice further dairy cattle herd reductions in the US than currently predicted."

Australian dairy farmers were being shielded from these pressures by the ready availability of fodder, following rains which forced substantial downgrades of last year''s grains harvest to feed, while encouraging pasture growth for hay.

"Australian producers are more likely to keep margins positive in an environment of falling global prices for dairy.