World dairy prices continue to strengthen
NEW ZEALAND - World dairy prices continue to strengthen. While prices will, eventually, peak and then weaken, there is no sign yet when that might happen, according to Western Illinois Agriculture Department Chair Prof William Bailey.
29 March 2007
1 minute read
From the supply side, the world milk production situation holds no surprises - drought in Australia, seasonally slowing production in New Zealand slightly accelerated by a lack of moisture and the Northern Hemisphere season off to a good start, he commented to ASB Bank.
Despite the lack of supply uncertainty, prices have continued up, with each increase adding a risk premium. How high prices must go before they start limiting demand is not clear.
Meanwhile, ASB economists believe prices will remain near current levels for at least one year and, as a result, have forecast New Zealand dairy co-operative Fonterra's payout next season to reach $4.60 per kilo of milk solids - about 10% above this year's payout.
World dairy prices have been in new territory for several months, making price predictions challenging.
Despite historically high world dairy prices and the world looking to the US to supply several key dairy products, the US dairy industry is taking production capacity off-line.
The farmer owned Cooperatives Working Together has announced that more dairy farmers than ever have asked to become part of the group's program to be paid to go out of business.
This most recent effort to reduce US dairy output, if fully enacted, could reduce milk output by more than 1 billion pounds.
