Never miss a great news story!
Get instant notifications from Economic Times
AllowNot now


You can switch off notifications anytime using browser settings.
12,086.70114.9
Stock Analysis, IPO, Mutual Funds, Bonds & More

Chinese dairy supply crisis to delay price adjustment: Report

Faced with a local supply-side crisis China is buying huge quantities of dairy from the internationally traded market - squeezing out many other buyers.

, ET Bureau|
Updated: Sep 27, 2013, 04.40 PM IST
0Comments
Faced with a local supply-side crisis China is buying huge quantities of dairy from the internationally traded market - squeezing out many other buyers.
Faced with a local supply-side crisis China is buying huge quantities of dairy from the internationally traded market - squeezing out many other buyers.
NEW DELHI: Faced with a local supply-side crisis China is buying huge quantities of dairy from the internationally traded market - squeezing out many other buyers. As a result,while international dairy prices peaked in April, prices remained exceptionally strong through Q3, according to a report by Rabobank.

"The easing of international dairy prices from their record peak in April lasted barely eight weeks," explained Rabobank analyst Tim Hunt. "Forward pricing on the GDT Price Index suggests we are amidst a period of high pricing that is unprecedented in terms of its level and duration."

By mid-September FOB Oceania prices for most dairy products were up on quarter opening levels. Powders and butter were just 10% to 15% below record levels, with cheese (which saw a more modest peak) of just 3%.

Market tightness remains primarily supply-side driven. While milk production in export regions moved back into expansion in July, improving local consumption and lack of stock has kept exports below prior year levels through recent months. Declining milk production through most of 1H 2013 saw international trade in dairy product volumes fall in Q2 for the first time in four years.

Tightness in an already stretched market became extreme when China, already the world's largest importer, swooped into the market for 27% more product in Q2 than in the 12 months prior. It is becoming increasingly apparent that China is facing a supply-side crisis, with both structural and temporary factors pushing supply below prior year levels in 1H 2013 - with credible reports of a 6% contraction. The surge in Chinese buying in a shrinking supply pool pushed many other buyers to the side-lines, sustaining extreme pricing to ensure effective rationing of product.

Strong farm gate pricing and falling feed costs are likely to generate a solid increase in milk production in export regions in Q4 and into the new year, providing some downward pressure on prices. However, with exportable supply growth likely to lag, China still on the hunt for increased volumes, and accumulated demand from sidelined buyers, price relief from the currently exceptionally high levels is expected to be delayed.

"Most likely, the prospect of any significant softening in world prices will be delayed, possibly until Q2 2014," commented Hunt.

Also Read

Dairy out of India-US trade talks for now

Dairy cooperatives seek tax parity with companies

There is no slowdown in dairy industry, reiterates Amul MD

Dairy industry wary of RCEP duty cuts

Prabhat Dairy to consider delisting, shares rally 20%

Comments
Add Your Comments
Commenting feature is disabled in your country/region.
Download The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.

Other useful Links


Copyright © 2019 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service