February 23, 2015
Global market forces that are driving down milk prices are now being felt on every dairy in the world, compared to being an issue mostly dealt with in New Zealand six months ago.
Analysts believe that the weak dairy market which has seen prices fall by 50% because of oversupply and a steep decline in demand from China, one of the world’s fastest growing dairy markets, will not show signs of recovery until possibly the second half of 2015.
Heavy investing and a push for modernization by China in its dairy sector has seen the country’s larger farms increasing production, boosting its domestic supply. Meanwhile the embargo by Russia on Western agricultural goods has eliminated the EU’s largest market for its cheese which was worth approximately €1 billion in 2013.
Producing countries which are not as dependent upon international markets, such as the U.S., have been initially shielded from a good amount of the volatility, however the fall in global prices is now being felt in the U.S. as well as prices fall from their previous record highs. Despite this decline in prices however, they are still higher than foreign prices from countries such as New Zealand, making exporting difficult.
Australia, the world’s fourth largest producer, has also been somewhat protected from the global price collapse due to the country’s high domestic demand allowing producers to switch from milk powder to products like cheese, and from its currently weak currency. As the global price has fallen by 50% – because of currency issues, the price to Australian consumers is down by only 12% according to Murray Goulburn managing director, Gary Helou.
This extreme volatility has led for calls for the development of more futures markets to help farmers cope. Euronext has stated that beginning in March it will re-launch its dairy futures and options contracts, and Britain’s government has stated that it is supporting a feasibility study to be conducted for dairy futures.
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