Hope for commodities as milk production falls

WORLD prices for dairy commodities could stabilise – or potentially increase – in the wake of falling production.

While acknowledging the possibility markets could come back into better balance, DairyCo however, points out significant stocks of recently accumulated product, would still need to be cleared before prices could increase significantly.

As already reported, UK production is looking like being 12 per cent (12,750 million litres) below quota.

And looking at the EU as a whole, despite quota increasing by 3.4 billion litres in the current milk year, DairyCo's head of market information Huw Thomas said production had remained stable with most member states seeing their milk deliveries falling below quota.

Institute's prediction

According to an Institute de l'Elevage (Institute of Agriculture and Animal Husbandry) report, France is predicted to finish the year around 5 per cent (1.2bn litres) below quota.

Germany and Spain are forecasted to finish 3.5 per cent (1bn litres) and 3 per cent (190m litres) below quota respectively. “Only Italy and Austria are predicted to exceed national quota with Italian production predicted to be 2.5 per cent (268m litres) over and Austrian production expected to be 2 per cent (57m litres) over,” said Mr Thomas.

“With the majority of member states now producing less than their individual quota limits, the European quota system can be seen as declining in importance as a market man-agement mechanism, with milk supply being increasingly regulated by prices rather than quota limits.”

Subsidised exports

Despite this, Mr Thomas said the EU remained “far from a self-regulated free market” with the intervention system providing a floor to the price for butter and SMP.

Additionally, export refunds were holding prices by subsidising exports out of the EU.

“The significant downward trend in commodity prices seen over the past 18 months has added fuel to calls by some member states for existing management mechanisms to be maintained beyond 2015.”

But production is also falling elsewhere. Mr Thomas said the United States, for example – an increasingly important player on the world dairy market – was expecting to see 2009 milk supply fall by 0.5 per cent compared to 2008.

Year-on-year decline

“This would be the first year- on-year decline decline since 2001.

“In New Zealand, it is reported that hot weather conditions are now hitting milk output with February milk supply 7 per cent below forecast.”

And he said Australian production, which had been on an upward trend, was now being hit by the extreme temperatures and bush fires earlier this year in and around Victoria – which accounts for almost 70 per cent of Australia's milk production.

Consequently, this year's pre-dicted 1 per cent increase in national milk production was in serious doubt.

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