Long-term dairy outlook is promising despite current gloom, report says

Despite falling dairy commodity prices during 2008, there is likely to be a noticeable recovery later next year, according to the latest global dairy industry report from Rabobank.

It predicted a “new era of inflated prices” would follow an improvement in the global economy. “Economic growth and cultural change have substantially increased the price the market will pay for milk.”

In particular, strong support would come from growing economies like China and Asia, which had less exposure to the financial crisis than Europe or the US. Rabobank predicted that consumption outside China and India could grow by 6-8bn litres per year, 2-3bn litres of which, was required in import-dependent markets.

But the report acknowledged that the timeframe for economic recovery was uncertain and the prospects for the rest of 2008 and early 2009 were more bearish. Dairy demand growth was likely to remain below average due to a sluggish global economy and there was potential for further price falls in the short-term.

Rabobank also pointed out that higher costs of production (particularly fertiliser and feed) would eat into improved farm gate milk prices and constraints on production in traditional low-cost regions meant that the market must turn to regions with higher costs of production, less efficient supply chains or greater structural barriers if it wanted additional supply.

Extreme volatility would likely remain a feature of markets, it said.

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