Drought-hit China may have to import extra dairy product

The most severe drought on record in parts of North China has emerged as a new factor in global dairy markets.

Hot, dry weather has negatively impacted Chinese milk output this summer, damaging large areas of crop and grassland.

This could trigger greater than expected imports of dairy products by China.

On the supply side, June figures have revealed the first 2016 decline in EU monthly milk deliveries, year-on-year, since April, 2015.

According to Rabobank analysts, the fall of 2% in the EU’s June milk confirms that the US is the only market where milk production has grown, but only by 1.2%, which compares with US domestic demand growth of 1.8%.

Milk supply is shrinking in Argentina, Brazil, Uruguay, the EU, Australia, and New Zealand, including May production slumps of 16% in Argentina and 10% in Uruguay.

Nevertheless, the timing and magnitude of recent global dairy price increases came as “a bit of a surprise”, considering global inventories of dairy products are still well above normal levels, said analysts at Rabobank.

These increases included an 18% gain in the price of whole milk powder, which the analysts said will have “the New Zealand dairy industry dusting off their gumboots”, and the successive GlobalDairyTrade auction average rises of 6% and 12%.

Demand for dairy products has continued to grow throughout Asia, according to Rabobank.

“It appears that importers throughout the region have been caught off guard by the rapid downward shift in milk output, and buyers are now rushing in to top up while product lasts,” was the conclusion in Rabobank’s recent North American agribusiness review.

Analysts went on to predict modest upward pressure on global and domestic dairy prices through 2016 and 2017.

The price rally will be tempered by the EU’s intervention stocks (the equivalent of 4m tonnes of milk); weak demand from oil-dependent markets; and a strong dollar.

Milk production trends in Australia and New Zealand, and the Chinese demand trend will also be major factors. 

And market analysts will be closely watching for the reaction in the US to lobby groups calling for the government to buy and distribute excess cheese to the needy, in order to boost milk prices.


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