The dairy market sell-off, which has driven milk prices to a 12-month low, is unlikely to develop into a rout – especially if dryness in the US, and rising cow lameness levels in Australia, curtail hopes for rising supplies.
While prices have peaked for now they are only set for a "relatively modest softening" for the rest of the year, John Moloney, managing director of Irish dairy group Glanbia, said.
"In the second half, there are strong prospects for extra milk supply which will require continued good demand to keep the market in balance," Glanbia said.
But while demand has "moderated somewhat recently as supply fears have receded", there was "nothing to suggest a fundamental downward shift" in buyers’ appetite for dairy.
"Present indications are that there should be no very significant price adjustments in the near-term," the group said.
"As a result, global dairy markets are forecast to be relatively positive for the remainder of the year."
Lame threat
The comments follow a forecast from National Australia Bank agribusiness economist Michael Creed of a "pull back" in prices late in 2011, as the so-called spring flush boosts southern hemisphere production, amid "relatively subdued" importer demand.
"However, there does appear to be some risk to this view," Mr Creed added, citing concerns that milk output in southern Australia "may come in weaker than expected due to lameness".
Lameness, which is promoted by weather extremes and reduces a cow’s ability to feed, is seen by dairy farmers as one of the largest threats to milk productivity, after infertility and mastitis.
Furthermore, "poor conditions have seen a slowing in US dairy production".
US milk output, while still rising year-on-year, has seen a steady slowdown in the growth rate since October, falling to 0.7% in July, hit by high temperatures and a lack of rainfall in many areas.
And expansion has only been maintained through herd increases, with production per cow 3 pounds lower last month than in July 2010.
Price falls
Last week’s internet globalDairyTrade auction, run by New Zealand dairy giant Fonterra, showed the price of the near-term whole milk powder contract falling to $3,359 a tonne.
That represented the lowest price for a near-term contract for a year, and a drop of one-third from a March high.
http://www.agrimoney.com/news/dairy-prices-to-fall—but-not-slump–3516.html
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