Drought in New Zealand tipped to push up dairy commodity prices

Anticipated strong growth in Northern Hemisphere supply is not expected to be enough to prevent prices from rising further in the first quarter of the year.

Drought in New Zealand ​

In its quarterly report on the dairy market, Rabobank predicted that “a drought-driven contraction in New Zealand supply through early 2011 will more than offset expected strong growth in the Northern Hemisphere.”​

The agro bank said New Zealand milk production could be down 5 to 15 per cent in the second half of the season.

As a result, exportable supply is tipped to fall marginally below previous year levels in early 2011 for the first time in two years.

Rabobank said the “emerging supply constraints are likely to exert significant upward pressure on international prices in Q1 2011”.​

China​ and Russia ​

On the demand side of the market, strong buying from China and Russia is expected to continue going into 2011. Rabobank said this is central to its upward price prediction.

A combination of increased consumption and falling local supply has resulted in exceptionally strong demand on world markets from China and Russia.

This has helped lap up unusually large milk volumes in recent months ensuring that prices remain strong despite slow dairy sales growth in developed markets.

Through the fourth quarter of 2010, US dollar prices of internationally traded commodity prices “drifted slightly upwards,”​​closing in mid-December 0 to 7 per cent up on opening quarter levels.