by Agrimoney.com
Dairy values are to stay firm for now, although two Chinese dynamics – cuts to infant formula prices, and hefty levels of advance purchases – could yet pose a threat to values.
Dairy commodity prices "should stay supported near current levels" through the rest of the July-to- September quarter, given that supplies are "still fundamentally short" after the poor start to 2013 for production, the US Dairy Export Council said.
Milk production in the top five exporters – Argentina, Australia, the European Union, New Zealand and the US – fell some 2m tonnes, or nearly 3%, year on year in the March-to-May period thanks to a series of weather upsets.
Northern hemisphere output was constrained by cold springs in many countries, while drought dried up production in New Zealand, the top exporter.
"Oceania suppliers have nothing to sell," the council said.
'Bears watching'
However, whether prices can stay high into 2014 "may depend on the needs of China", whose 18% rise in dairy imports in the first five months of this year also played a big part in driving values at GlobalDairyTrade auction in April to a record high, which they remain within 10% of.
The cuts of some 10% by foreign dairy groups - Abbot Laboratories, Danone, Fonterra, Mead Johnson Nutrition and Nestle, as well as Hong Kong-listed Biostime International - to prices of infant formula products, amid a market investigation by Chinese authorities, could weigh on values of whole milk powder, a major ingredient.
"So far that doesn't seem to be the case, but it bears watching," the council said.
'Bought ahead quite a bit'
Furthermore, Chinese buyers may already have covered much of their needs by a 56% rise in whole milk powder purchases in the January-to-May period.
"The world's largest importer has already bought ahead quite a bit.
"We expect there will be some advanced buying toward the end of the year to get product in the pipeline under preferential tariffs from New Zealand in the new year," with China cutting import levies for purchases from New Zealand for a set quota at the start of every year.
"But with so much early shopping, overall whole milk powder import volumes may be close to year-ago levels over the balance of the year."
'Heightened competition'
Separately, National Australia Bank forecast prices remaining firm in Australia over the recently-started 2013-14 season, noting successive rises by processors to the values they are prepared to pay producers for milk.
"The offering of higher farmgate prices by processors reflects the heightened competition for milk in a tight supply environment and boosted confidence for stronger export demand this year, underpinned by a more favourable exchange rate," NAB said.
"Given this, we expect the average export dairy prices to rise by 2% in 2013-14."
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