Dairy, beef on rise due to drought

World dairy prices have already risen from recent lows. Photo by ODT.
World dairy prices have already risen from recent lows. Photo by ODT.
While global dairy and beef prices are forecast to rise due to widespread drought in the United States, economists are suggesting immediate gains to farmers may be limited.

About 80% of US agricultural land has been experiencing the most extensive drought since the 1950s, leaving corn and soybean crops severely damaged.

The US Department of Agriculture's forecasts of soybean production were now for a 13% fall by 2012-13 compared with 2011-12, while the corn harvest was expected to drop 14% on the previous period.

World dairy prices had already risen from recent lows and GlobalDairyTrade auction prices were up about 20% since late July.

The impact on beef prices was likely to take longer as farmers off-loaded stock, Westpac senior economist Felix Delbruck said.

The drought had pushed up feed costs for northern hemisphere cattle farmers and was likely to boost global dairy and beef prices.

However, the dollar had followed dairy prices higher, tempering the gains at the farm gate, Mr Delbruck said.

Westpac continued to forecast a dairy payout of $5.70 for the 2012-13 season, while prospects were firmer for the 2013-14 and beyond.

With a recovery in global growth and ongoing income growth in emerging markets, particularly China, the bank expected increased demand to underpin prices.

Rabobank's latest agribusiness review said October would "provide the litmus test" for Oceania commodity pricing as the seasonal milk production flush arrived.

The strength of milk flows was likely to determine how the speed of the potential catch-up with northern hemisphere equivalents, in addition to being a key driver of global price levels.

Emerging markets had underpinned strong dairy import demand in recent months and while demand would probably continue to expand, purchasing was at risk of slowing from those countries that might have stocked up for short-term requirements, the report said.

International dairy commodity prices gained strength in US dollar terms through September, for the second consecutive month.

Butter was up 14%, whole milk powder up 16% and skim milk powder up 21%. Cheese saw a modest gain of 6%.


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