The dairy industry has endured a tough 2014, with prices across the board down by around 50 per cent – hit by the twin problems of oversupply and the collapse of demand in two of the biggest importers, China and Russia.
In its respected quarterly analysis of the dairy market, Rabobank said that, while prices have continued to fall, the rate of decline has slowed and signs of stabilisation have emerged.
But that optimism is tempered by the belief that things cannot get much worse.
«By now, prices have fallen so far in international markets that the downside potential is – by definition – reasonably low,» Rabobank noted.
«It may take a weak southern hemisphere production peak in 2015 to finally tip the balance – suggesting the fourth quarter as the most likely timing for price recovery to gain momentum in international markets.»
Prices for dairy products out of Australia and New Zealand fell by up to another 15 per cent in the December quarter.
However this week’s final Global Dairy Trade (GDT) auction for the year gave a hint of good news, with prices edging up 2.4 per cent.
The GDT price index – which measures a basket of dairy products – has tumbled from 1,455 to 757 over the course of the year.
Whole milk powder prices at the GDT auction rose 1.4 per cent to $US2,270 a tonne, a marked decline from the $US5,000 a tonne being paid at the start of the year.
Added to an already weak global economic environment and reduced buying from China and Russia, the market is struggling under what Rabobank called «an exceptionally strong supply growth» and now a rising US dollar.
Chinese dairy imports in October were down almost 50 per cent on the previous year.
«Chinese purchases are unlikely to exceed prior year levels again until the second half of 2015, while the Russian trade ban looks unlikely to be removed in 2015,» the report argued.
China is the world’s largest dairy importer, while Russia is ranked third, and the two combined account for about 20 per cent of global imports.
The oversupply situation has been exacerbated by falling stock-feed prices and delays in the price signals reaching the farm gate, particularly in the Northern Hemisphere.
Despite the tumbling prices, Rabobank has found that supply growth among the seven largest producers has exceeded its long term average for 15 consecutive months «and clearly needs to slow.»
The report also notes that the strengthening US dollar – and the corresponding fall in emerging market currencies – is likely to weaken the purchasing power of many dairy importers in 2015.
However the bottom line for any recovery rests on how quickly the world’s dairy suppliers respond to the price slump.
Source: ABC
