China Snapping Up Dairy Supplies; Strengthening World Price

Rabobank third quarter dairy market analysis finds Chinese demand keeping dairy prices strong

Published on: Sep 26, 2013

A look at the global dairy situation for Q3 finds Chinese buyers eager to snap up more dairy product and tight supplies likely continue into next year, agribusiness firm Rabobank says.

The report, published by Rabobank's Food & Agribusiness Research and Advisory team, explains that a variety of factors are contributing to the realized and expected tightness in global dairy markets.

"The easing of international dairy prices from their record peak in April lasted barely eight weeks," explained Rabobank analyst Tim Hunt. "Forward pricing … suggests we are in a period of high pricing that is unprecedented in terms of level and duration."

Rabobank third quarter dairy market analysis finds Chinese demand keeping dairy prices strong
Rabobank third quarter dairy market analysis finds Chinese demand keeping dairy prices strong

By mid-September, Free on Board Oceania prices for most dairy products were up from levels at the opening of the quarter. Powders and butter were just 10% to 15% below record levels, with cheese off just 3%.

Rabobank says the tightness remains supply-driven.  While milk production in export regions expanded in July, improving local consumption and lack of stock has kept exports below prior year levels in recent months. Declining milk production throughout most of the first half of 2013 saw international trade in dairy product volumes fall in Q2 for the first time in four years.

Chinese demand

Rabobank explains that China, already the world's largest importer, swooped into the market for 27% more product in Q2 than in the 12 months prior, adding more tightness to an already stretched market.  The report says both structural and temporary factors are pushing Chinese supply below prior year levels in the first half of 2013.

The surge in Chinese buying within a shrinking supply pool pushed many other buyers to the sidelines, sustaining extreme pricing to ensure effective rationing of product, the report adds.

Milk production set for expansion?

Strong farmgate pricing and falling feed costs are likely to generate a solid increase in milk production in export regions in Q4 and into the new year, providing some downward pressure on prices.  However, with exportable supply growth likely to lag, China still on the hunt for increased volumes, and accumulated demand from sidelined buyers, price relief from the currently exceptionally high levels is expected to be delayed.

"Most likely, the prospect of any significant softening in world prices will be delayed, possibly until Q2 2014," Hunt estimates.

News source: Rabobank