Dairy market to remain tight in 2011, says Rabobank

The bank said in its Global Dairy Outlook report that although consumption rates are set to be strong in the new year, growth in some regions will be constrained by physical limitations of supply.

“Drought in Russia and floods in Pakistan will heavily impact local milk production in the first half of 2011”,​ said Rabobank.

While these conditions are likely to create increased demand for imports, the bank said that domestic consumption is likely to be restricted.

Consumption is expected to be supported by improving labour markets in the West, strong economic growth in import regions and strong buying in China.

Supply levels​

Factors effecting supply levels include higher feed costs, ongoing requirements for farmers to reduce debt levels and the likelihood of limited supply growth beyond New Zealand.

Given the country’s central role in determining Southern Hemisphere surpluses this season, any adverse weather events through the 2010/11 season could have an upside effect on dairy prices in 2011, said Rabobank.

An increase in grain prices could also “dampen​” milk production volumes and consequently lead to an increase in dairy prices, said the bank.

According to reports on Rabobank’s latest quarterly statement, international dairy commodity prices drifted higher through Q4 2010, building on already high levels.

Rabobank had previously predicted high price levels for 2011 if prices held firm in Q4 2010. However, the bank said alternative scenarios should also be considered.

Future role of China and India​

Rabobank has also changed its view on the likely role of China and India in global dairy markets.

The bank has abandoned the view that the countries will reach self-sufficiency soon and now predicts that they will call on the world market more frequently in the next three to four years.

Rabobank said that China in particular has a structural deficit that will be difficult to erode in coming years.