Global dairy markets will remain weak through the first half of 2009 due to weak economic conditions worldwide and plentiful dairy supplies, say Rabobank analysts in a report released this morning.
Also look for a moderation of recent supply growth as dairy producers in key export regions scale back, says Deborah Perkins, Rabobank Food & Agribusiness Research and Advisory Managing Director. "The cost of producing milk has significantly increased for all farmers due to the structural increase in prices for feed grain, fertilizer and fuel,” she says.
And restraints on land and water in low-cost dairy regions will constrain growth there, she says. "The market will eventually need to turn to regions with higher costs of primary production, less efficient supply chains or greater structural impediments, such as Latin America and the United States,” she adds.
The medium- to longer-term dairy outlook remains positive. Global income growth and favorable demographic and cultural trends all mean more people are aware of dairy products and are willing to pay higher prices for them.
But price volatility will remain. "Global dairy stock levels are low and, in the medium term, it is expected that there will be frequent shocks to the demand and supply side of the market,” she says.
"As the global dairy industry contemplates life in this new market era, players all along the supply chain will need to re-evaluate their strategies,” she says. "Those who adjust best will be well placed to reap the benefits that market change will bring.”