Despite the financial crisis in Europe and uncertainty over U.S. dairy policy, dairy analysts are cautiously optimistic, even bullish, for 2012 world dairy markets.
Jerry Dryer, with J/D/G Consulting, Bart Van Velleghem, Secretary General of Europe’s dairy trade association Eucolait and Marc Beck, senior vice president of export marketing for the U.S. Dairy Export Council (USDEC) participated in a webinar this afternoon of 2012 global dairy markets. The webinar was sponsored by Dairy Foods magazine and USDEC.
“I’m sensing a little bit of bullishness,” says Beck. “Right now, we are in a sweet spot where we have stronger global dairy prices and we have the milk supply to meet that demand.”
And as economies continue to recover from the 2008/2009 global recession, the middle class in many of these countries will continue to grow and demand more dairy products, says Dryer. “These emerging markets are continuing to emerge. China will continue to be a factor. In the first 10 months of 2011, China’s dairy imports were up some 10%. While they weakened in October, 2011 will still be a very good year.”
While Russia has backed off considerably in its dairy exports in 2011, Beck notes that the country is holding a presidential election in March of 2012. “That could have a positive impact because [Vladimir] Putin doesn’t want empty food shelves during the elections,” he says.
Plus, Russia could enter into the World Trade Organization in the coming weeks. While that automatically won’t open the country to more imports, the rules for doing so might become more transparent and allow exporters more confidence in trading with the Russians, says Beck.
Venezuela is also holding elections in 2012. That, too, will bold well for keeping grocery shelves and dairy cases full to avoid voter backlash.
India is a wild card, and its import intentions are unknown. “But when India comes into the market, it provide a real jolt,” says Beck. And that could happen in 2012.
The European credit crisis is one more of perception than reality for countries that import dairy products from the European Union, says van Belleghem. “Some Asian buyers think the EU will collapse. But as of now, the crisis has not really had a direct impact. The crisis so far has not impacted our ability to do business,” he says.
The bigger problem for European dairy farmers is that their milk prices are too high to allow them to compete for global markets. In 2011, EU farmgate prices average nearly $22/cwt, up from $20.50 in 2010 and $17 in 2009.
And even though the EU currency value has declined versus the U.S. dollar and other currencies, EU dairy prices are still not competitive globally for most products with the exception of skim milk powder, says van Belleghem. The good news, at least for European farmers, is that world market prices have risen recently and are getting closer to EU prices. But that also means U.S.- and Oceania-priced products are that much more competitive.
For the United States, Dryer expects milk prices to fall slightly in 2012. “We’ve been at $20 in 2011, and we’ll only be marginally below that next year,” he says.
He notes that U.S. milk production grew 1.7% in 2011, but estimates it will grow only 0.4% in 2012. He believes some of that growth came as a result of “race for base” as the U.S. dairy policy discussion included a supply management component.
But he says high feed prices—and possible supply management if it is passed—will curtail U.S. milk production in 2012. “Feed supplies have been the real issue; there isn’t enough forage in some regions,” he says. “Supply management will hurt exports…. We don’t need supply management.”