Dairy prices expected to dip not dive

By Guy Montague-Jones

- Last updated on GMT

Related tags Milk

Global dairy prices could dip in the coming months as Chinese and Russian demand falls but any downward movement is likely to be limited, according to Rabobank.

“Partial data and anecdotal evidence suggest that import-buying from China and Russia has dropped off substantially since the opening 3 to 4 months of the year,”​ said the bank in its quarterly dairy market update.

Excess buying

Concerns about the impact of poor weather in New Zealand had prompted “a frenetic stock build” ​at the start of the year. The Chinese, for example, increased milk powder purchases 45 per cent in Q1.

But milk production in New Zealand turned out to be better than initially expected, rising some 15 per cent in the first half of the year compared to 2010.

The healthier supply picture led to the recent drop in demand, which could spark price reductions but Rabobank does not expect any dramatic reductions.

“The extent of any downward price movement is likely to be limited as many buyers that have been squeezed out of the market by high pricing through recent months are likely to re-enter the market should product become even modestly more affordable.”

Underpinning the optimism about the return of buyers are improvements in the market fundamentals. Sales of dairy products are recovering in the EU and US, and Russia and China remain growth markets.

“Underlying global demand for dairy will improve,”​ said Rabobank.

Market uncertainties

But exactly what the future holds in terms of international dairy pricing does depend on several factors.

“Market pricing in the dairy complex will be heavily influenced by when and how vigorously China and Russia return to the world market, and the speed at which exportable supply growth slows in key surplus regions in response to rising feed costs and increased consumption at point of origin.”

If weak buying from China and Russia continues into the third quarter, prices could tumble further than expected. On the other hand, prices could be pushed up by an increase in Indian purchases or a slowdown in milk supply as a result of higher grain prices.

Related topics Markets Pricing Pressures

Related news

Show more