Dairy demand tumbles as exporters wait for China to restock milk cupboards

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Milk supply is up and demand, especially from China, is down, leading to a drop in global dairy prices.

It means farmers who were encouraged to increase their production are now facing tougher competition and lower prices for their milk.

Dairy Australia’s Norman Repacholi says the market volatility is likely to continue until excess milk stocks in China are cleared.

«At the moment, uncertainty is definitely the word I would use to describe the market.

«A whole lot has really changed and the biggest factor there has just been that global supply has overtaken the demand situation, and international commodity prices have really dropped away,» he said.

Farm gate prices for milk are floating above global demand and added pressure from a combined embargo of dairy exports to Russia from Australia, Europe and North America, is predicted to destabilise high dairy prices passed on earlier this year.

Mr Repacholi says dairy farmers are carrying a lot of momentum from a surge in production to start the year and now have fewer markets to sell into.

«At the moment, everyone is keen to take advantage of the customers that are still out there and still buying.

«A lot of key buyers are going hand to mouth, so they are not contracting as far forward as what they would initially, so there is competition not only from Australia and New Zealand but also from the US that’s looking to get a bigger slice of the export pie,» he said.

Australian dairy commodities are currently trading 20 to 40 per cent lower internationally depending on the product.

Mr Repacholi says this demonstrates the purchasing power of China and Russia on world trade and at home on declining milk prices.

There two silver linings in the currently hostile dairy market are the weaker Australian dollar and increasing demand from South East Asian countries.

The weaker dollar and rising demand from countries such as Indonesia, the Philippines and Vietnam will help to absorb some of the oversupply of Australian product.

«There has been a bit of a recovery in demand out of South East Asia…that were formerly priced out of the market.

«There is a lot of potential there and not only are we seeing a lot more inquiry from Indonesia to Australia asking where can we get particular products, but there is also a lot of the Australia companies looking at Indonesia favourably in the context of all the dairy markets at the moment as somewhere they are looking at for further growth,» he said.

Source: ABC

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