GLOBAL - According to Rabobank (2014) third quarter report there was a decline in global dairy prices similar to that felt in the second quarter of the year, according to Alan O’Brien from the Shanghai Office, Bord Bia – Irish Food Board.
This global decline in prices was attributed to a combination of retracted demand and increased supply by the Big 7 exporting nations (EU, US, New Zealand, Australia, Brazil, Argentina, Uruguay).
On the supply side milk production in the Big 7 continued to expand strongly in the third quarter; a combined 4.3 per cent (additional 3.2bn litres) in the three months leading up to July with half this increase coming from the EU.
On the demand side purchasing by Chinese buyers on the international market tapered back in the third quarter whilst in Russia the continued import ban from major suppliers also had an impact on the market.
Forward purchasing by Chinese buyers has eased since April as buyers continue to work through inventories accumulated at the end of 2013 and in the first quarter of 2014.
It must also be highlighted that China’s economy is currently in a phase of restructuring as the government focuses on rebalancing the economy to stabilise growth rates and remove overcapacity; this will continue to see controlled reductions in GDP and personal consumption to 7.7 per cent and 8.1 per cent per annum over the next two years, and further reduction after 2015 (IMA 2014), which may impact demand and buyer behaviour over this period.
On the supply side, according to Rabobank, China’s domestic production improved in the third quarter of the year bolstered by a mild summer, high prices and economies of scale gained from consolidation of small “backyard” farming units into large industrial units (an on-going government focus).
As a result of improved local production and the accumulation of inventories at the start of the year, the fourth quarter is not likely to see Chinese buyers return to the market in force, which will reduce import volumes.TheMeatSite News Desk