Promise of price increases as production decreases

Improved global dairy supply and demand and expected lower production growth may result in higher international prices in coming months.

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Commenting on the dairy market outlook for the rest of 2012, Dr Koos Coetzee, economist at the Milk Producer’s Organisation (MPO), said strong growth in demand, especially in Asian countries, should exceed any possible reduction in developed countries’ demand. Milk production was 5,6% higher in May year-on-year. Coupled with weak demand in developed countries, this had a negative effect on product prices.

At the same time, higher production in 2011 did not result in higher stocks as exports increased substantially. Coetzee said a slowdown in production is expected during the remainder of the year. This is due to a rise in input costs and lower international product prices. It will also result in lower producer prices globally. But, he added, there are signs prices may increase in coming months.

He said that, although prices are currently below the 2008 peak, they’re still substantially higher than during the recession.
Meanwhile, the balance between total exports and imports has levelled on the back of higher exports. SADC countries remain the main destination for exports. Dairy exports have doubled since last year and are expected to grow. Demand in developing countries is still strong and imports are higher than last year.

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Coetzee said that, despite slightly lower maize prices, the increase in protein prices has resulted in higher feed prices, which will negatively affect growth in the dairy industry. “The MPO’s weighted dairy farm production cost index increased by 15% from January 2011 to January 2012. Fuel, fertiliser and machinery prices also increased substantially.”