Chinese demand drives high global dairy prices

International dairy prices remained exceptionally strong in the third quarter of 2013, buoyed by huge buying demand from China.

Despite easing from their April peak, global dairy commodity values had again picked up over the summer, said Rabobank analyst Tim Hunt. “We are amidst a period of high pricing that is unprecedented in level and duration.”

By mid-September Oceania prices for milk powder and butter were just 10-15% below record levels, with cheese just 3% down. This was despite growing production in main exporting regions, as improving local consumption and lack of stock had kept exports below last year’s levels, he added. “China is facing a supply crisis, with credible reports of a 6% contraction in the first half of the year.”

Strong farmgate prices and falling feed costs were likely to boost exporters’ milk production in the final quarter of the year, putting downward pressure on prices, warned Mr Hunt.

“However, with China still on the hunt for increased volumes, and accumulated demand from sidelined buyers, the prospect of any significant softening in world prices will be delayed, possibly until Q2 2014.”

ANALYSIS: The case for a higher milk price