Rural lending specialist Rabobank said it expects world dairy
prices to remain at the current elevated levels in 2014
because of ongoing strong demand from China.
International dairy commodity prices strengthened from
already high levels in the three months to mid-December and
are expected to remain high at least for the first half of
2014, Rabobank said.
The increase of export supply since September, as producers
have responded to improved margins, has been largely been
soaked up by China.
"Global prices have remained high despite the taps being
turned on in key export regions," Rabobank analyst Tim Hunt
said in a market commentary.
"China continues to buy exceptionally large volumes of
product from the international market to supplement falling
local milk supply and this is likely to mop up most, if not
all, of the increase in exports arising from key surplus
regions in the fourth quarter."
Despite a small softening in prices in October and November,
global prices have remained firm.
By mid-December, whole milk powder - the most important
segement New Zealand producers - held above US$5000 a tonne.
China's buying has left the rest of the international market
with less supply to go round, keeping the market tight, it
Rabobank believes many of the buyers in regions including
South East Asia, the Middle East and North Africa, have used
up all the meaningful back-up stocks after a period of
The global dairy market will enter 2014 with farmgate milk
prices at record or near record highs in many export and
import regions, it said.
Meanwhile the prices of commodity feeds such as soybeans and
corn have fallen 10 per cent to 40 per cent below prior year
levels in US dollar terms, opening up large margins for milk
producers in intensive feeding regions.
Rabobank expects a further increase in China's dairy
purchases from the world market in 2014.
"We expect prices to hold around current highs before easing
from mid to late 2014 with continuing supply growth in
response to significantly improved margins," Hunt said.
"Any subsequent reduction in pricing will be limited by
structural constraints on suppliers, the need to replenish
depleted inventories and ongoing demand growth in line with a
slow economic recovery," he said.
- By APNZ business reporter, Jamie Gray