In the global dairy market, the production growth does not complement how the demand develops. That means a new stage of prices since 2007: higher prices result in lower subsidies; falling subsidies in lower stocks and lower stocks in more volatility. The year 2012 had closed with 54% less stock of milk powder than in 2002 (the subsidy functions as a fictitious demand, this encourages the production of something that then there is no one buying and this produces accumulatation of inventories).
At the same time demand, mainly Chinese, is growing at very high rates. In 2008 this country imported 55,000 tonnes of skimmed milk powder (LPD) and 46,000 tons of whole milk powder (WMP). According to USDA projections, in 2013 they will import 230,000 tons and 410,000 tons each , 318% and 791% increase respectively in six years.
The world needs milk, but this happens in a context where extreme weather events are repeated every year conditioning the offer.
The influence of climate on the dairy market is not considerate as in other markets because 40% of the production is developed in the United States and Europe, where cows eat grains and generally conserved feeds , the other great international market player, New Zealand, has generally a calm climate.
However, in July 2011, in the United States, with a liter of milk you could buy 1.9 units of feed, while in July 2012 the buying power fell to 1.34, all this because of the drought.
In New Zealand there was a historical drought in March  that resulted in the change of growth projections. The result was that the average price for  WMP in Oceania climbed 70% between January and April 2013, going from 3300 to 5600 U.S. $ / ton.
On the other hand, in Fonterra auction May 1st WMP price went down $ 500, because it rained when the tender   was closing, among other things. In May and June this country produces 5% of the total for the year. This is how volatile and sensitive is the market is to climate.
Argentina is no exception. The combination of extreme weather, floods in the spring and droughts in summer, joined with the increase in grain prices in a context where the price of milk that just about the end of 2012 began to recover, made that the second half production 2012 was 5% lower than the same period in 2011 and that during the first quarter of 2013 falling arrives to 9.9%.
In the last 6 months, after two years of stability, the price of milk increased by 30 percent. If the current values are stable end of the year we will have accumulated three years of inflation of around 25% with an improvement in the price of only 30%.
For the next few months is expected an adjustment in the international market values ​​to around 4500 U.S. $ / ton of WMP. In this context WMP exports would have a capacity to pay the producer a 20% higher than the current price. This hardly happens for the reason that the intervention would be here soon, because the main industries drag losses and have pressure to not increase product prices in the domestic market.
In the meantime exports of milk powders in the first quarter of 2013 cut down 33% from the same period in 2012 according to data from Senasa.
In March, the price of milk in Argentina was 0.38 U.S. $ / l, while in Uruguay and were paid U.S. $ 0.43 / l in Brazil 0.46 U.S. $ / l.
The opportunities keep passing and Argentina dairy has remained stagnant.
In the second semester production could return to growth as a result of the increased price of milk and the falling of grain prices.
In this way the year closed with a volume similar to the 2012, the year in which growth was 0.73% compared to 2011, when there were 11.206 million liters, not 11,600.
Like this we will have grown by 9.5% in 14 years, a miserable 0.68% per annum.
Source: Lechería Latina – Translate: Ximena Vogel
