Global Dairy Market Faces Battles From Many Angles

13 Jan 2015 --- The global dairy market is facing challenges that will see prices drop further before things improve, says the US Department of Agriculture.

Dairies face pressure from the Russian import ban from certain key milk and milk product producing countries, as well as an unexpected fall in Chinese demand for whole milk powder, which it is hoped, will improve throughout 2015. These factors, coupled with over-production during 2014, means that there is a surplus of milk, and intense pressure on pricing.

In 2013, the EU exported some £1.8bn of dairy products to Russia, which represented around 27% of its cheese-related products, as well as liquid milk.

The USDA report 'Dairy: World Markets & Trade' suggests that until the issue of oversupply is addressed and reduced, lower prices will continue. For 2015, the forecasts are drawn on the basis that the Russian ban will be lifted in early August and that the Chinese will remain major purchasers of WMP albeit at a much more modest pace. In fact, the forecast calls for Chinese imports of WMP to decline by 12 percent as China’s economic GDP growth is expected to slow from a projected rate of 7.4 percent in 2014 to 6.5 percent in 2015. In addition, the anticipated demographic boom expected from the relaxation of the one-child policy that was to fuel import demand has thus far not materialized.

This suggests that dairy prices will be under pressure during 2015. Farmers will be facing reduced margins and milk production among major exporters is expected to slow and expand by only 1 percent. The speed at which dairy prices recover will depend on drawing down stocks that will have accumulated in exporting and importing countries.