Policy Markets Processing

Slight Relief From World Auction and Russian Rethink

GLOBAL - Short term dairy market prospects were lifted slightly this week by stability from the Fonterra Auction and Russia’s lactose-free embargo amendment.

22 August 2014

2 minute read

Wednesday’s Global Dairy Trade (GDT) index edged 0.6 per cent lower, a markedly smaller drop compared to recent auction results.

This was followed up by Thursday’s news of a relaxation to Russia’s ban, reopening doors to lactose-free milk.

Finnish processor Valio, which accounts for 85 per cent of Finnish dairy exports to Russia, has been singled out as main beneficiary.

As Finland’s largest dairy, generating 20 per cent of its income from Russian sales last year, Valio has also been one of the hardest hit, closing production lines in Finland and preparing Russian plants for shutdown.

These are highlights from market intelligence reports from teams at Dairy Australia and DairyCo which summarised the GDT result as ‘perhaps better than many expected’ and bringing ‘some measure of stability’.

Whole Milk Powder and Anhydrous Milk Fat increased by over three per cent, with the latter linked to speculation over a likelihood of increased Russian purchases.

Major decreases for Cheddar and Skim Milk Powder were reported. The GDT’s price trough is caused by China’s stocks being full and higher production in the US, New Zealand and Europe.

Chinese demand is satisfied for now and yields in the US are expected to remain strong, said agricultural economist Professor Bob Cropp earlier this week.

US cows are greater in number this year, but more importantly they are producing more milk per head.

This is even true in regions battling against drought and high hay prices such as California, which produced more milk in July this year than last.

Positive crop reports could mean high yields continue into the winter, said Prof Cropp in his University of Wisconsin monthly commentary.

He said lower corn prices are helpful to dairymen but downward pressure would remain on dairy prices.

Total US milk production should be around four per cent higher than 2013. Looking ahead, he wrote: “We can expect dairy product prices and milk prices to decline. The question is how soon and by how much.”

China’s buying spike, which leaves it ahead of Canada as the US’s second largest customer, has corrected, as full stocks have decreased import activity, he added.