Rabobank's Australian-based Food & Agribusiness Research and Advisory division says pricing in international dairy markets remained extremely firm in U.S. dollar terms through early May, although they softened very slightly at the most recent auction.
"This is a product of strong buying demand and falling milk production,” Rabobank says in its May 2010 Australia and New Zealand Agribusiness Review. "The indications in Australia and New Zealand are that the opening price for the 2010-11 season will be up or equal to current prices, lifting confidence in the sector.”
The group also notes that the global economic recovery continues, and global grain prices are expected to remain steady. It also notes the rise in oil prices over the last month, with levels at well above the $80/barrel mark.
Global dairy highlights of the Rabobank report include:
· Pricing in international dairy markets remained extremely firm in U.S. dollar terms through early May. The weighted average price of products auctioned on the global DairyTrade platform fell just 1.5% in the four weeks to 4 May, while USDA price surveys provided further evidence of tight market conditions.
· Market pricing continued to receive support from a combination of improved buying and falling milk production, with prominent near term downside risks failing to materialize in recent weeks. General economic conditions continue to improve, with the International Monetary Fund in mid-April revising upwards its forecasts for global GDP growth to 4.2% (from 3.9% in January). However, the recovery remains very much a two-speed affair: progressing tepidly in most of the OECD but solidly in developing countries.
· Economic fortunes seem to be reflected in dairy demand, with at best pedestrian growth reported in sales of most product lines in the U.S., European Union (EU) and Japan, juxtaposed against strong buying from developing Asia, the Middle East and North Africa.
· Fears that Chinese imports might soften as 2010 progressed have so far proved unfounded, with March powder imports setting a new record of 41,000 tons, despite rising product costs and earlier government concerns over incoming product flows. Indian buyers have also been active in the market, as they seek to cover seasonal shortages for the second year running. Given the patchy nature of the recovery in global demand, price support is almost certainly coming from falling milk production, following a sustained period of low milk prices and adverse weather in some regions.
· The Southern Hemisphere milk production season is winding down faster than usual. In the Northern Hemisphere, the EU season appears to have started poorly. While U.S. milk production edged above previous year levels in March, profitability declines in April temper expectations for the season. Market lags bring the prospect of continued near-term market tightness in the international dairy trade, despite the inevitable impacts of such high market pricing on demand and supply down the track.