Rabobank Foresees Continued Expansion in World Dairy Demand

June 22, 2010 06:31 AM
 

Source: Rabobank

 

International dairy commodity prices gained ground again during 2010’s second quarter, with exceptionally high near-term pricing reflecting the ongoing tension between strong pockets of demand and a sustained period of falling milk production in export regions, Rabobank said this week.

 

The second half of 2010 could see product availability improve somewhat, with milk production on the rise, the European Union (EU) destocking and the U.S. returning its focus to export, the international bank noted in its “Trend and Outlook for the International Market” quarterly report.

 

Demand is expected to continue to expand over the same period, although possibly at a lower rate than in recent months.
 

Overall dairy demand has outperformed expectations in the first half of 2010, the report noted. The developing world continues to provide a strong engine for demand growth, with traditional importers increasingly active, and non-traditional buyers like China and India joining the fray, the report said. Developing world players such as Brazil, India, China and Southeast Asia have been traveling at rapid speed, Rabobank said.

 

At the same time, current demand remains weak in most advanced economies, Rabobank said. In particular, the recovery in U.S. consumption has been losing momentum.

 

Milk production continues to fall, with April bringing its 10th consecutive month of year-over-year decline in milk supply from the world’s main export regions.  This was due to low milk pricing through 2009 and adverse weather in Europe and New Zealand.

 

With milk pricing on the rise in most countries and improving weather in the EU, however, May is likely to have seen aggregate milk production surge in export regions, said the bank. “A developing premium for powder production over cheese in the U.S. has ensured that international commodity markets are driving U.S. milk prices for the first time since 2007-08, encouraging resurgence in U.S. exports,” Rabobank said.

 

Demand for dairy is expected to continue to expand through the second half of 2010, building on a recovery that has come earlier and stronger than anticipated. The rate of growth, however, may well slow “in the face of headwinds from reduced economic growth, rising retail prices and substitution pressure,” the report noted.

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