Milk prices tipped to recover in six months

 The global dairy sector organisation says farmers will respond to lower milk prices by cutting production; this will have its full effect on prices next year.

The IDF made the comments in its World Dairy Situation report for 2014, released last month.

Prices on Fonterra’s Global Dairy Trade auction have fallen 50% since February; milk companies are dropping forecast payout. Last season most companies paid out record milk prices to farmer suppliers.

The IDF says the turning point in the market was reached at the beginning of the year. Prices are at the level of the previous turning point in 2011-12, however production remains strong.

“While milk producer prices and feed prices are favourable in combination with good weather conditions, there is no chance of lower production and price recovery. It is only this summer (New Zealand winter) that producer prices started to come down.”

Strong milk growth has been recorded in key markets during the first six months; EU production was up 5.1% over the same period last year, US was up 1.7%.

The IDF expects total milk production this year to be up 3% over last year- an above average growth. However, next year’s production is forecast to grow 2% as farmers respond to lower prices.

 In 2015, trade should be expected to regain its normal, long-term average growth pattern, provided that key trade relations have more or less normalised by then, it says.

This means trade volume may grow by another 4% to exceed the 70 million tonne milk equivalent mark for the first time.

“International projections expect a population of 9 billion inhabitants in 2050, and thus an increased need for food in the coming decades,” the IDF says.

According to the OECD/FAO Agricultural Outlook 2014-2023, the global average per capita dairy consumption should increase by 13.7% between 2011-13 and 2023.

“Driven by rising population, income levels and urbanisation, consumption should increase all the more in developing countries.”

It says 2013 was an exceptional year, driven mainly by weather conditions in the beginning of the year.

“As a consequence lagging milk production generated a lower availability of milk for exports and, given the continuous strong global demand, led to exceptionally high average prices. 

“Throughout the year dairy market prices remained at elevated levels. As a result producer prices for raw milk were exceptionally high. In Europe as well as in New Zealand, dairy farmers had never received such a high milk price as they did throughout the course of this year. Similarly, the milk price in the US was relatively high, even if it remained below the record level of 2011.”

India to overtake EU

India is tipped to become the biggest milk producer surpassing the EU, according to the International Dairy Federation.

Almost total milk production in India is consumed fresh; only small quantities are processed.

The IDF doesn’t expect the end of the quota regime in 2015 to have a significant effect on total EU production.

It may lead to further concentration of milk production in some countries of the bloc, it adds.

The IDF expects growth in New Zealand dairy exports to decrease compared to the last 10 years; stronger currency, increasing production costs and environmental restraints will be responsible.

“Nevertheless, growth of production remains stronger compared to the other big exporters; extra production in New Zealand is almost totally destined for export,” the IDF says.