IT WILL BE the end of the year, before global dairy markets rebalance, a leading industry analyst has told a Tasmanian conference.
Rabobank Food and Agribusiness research advisory Michael Harvey was addressing the DairyTas conference, in Burnie.
“Russian and Chinese import volumes, for the last quarter of 2014, were very, very weak,” Mr Harvey said.
Rabobank analysts remained “cautiously optimistic” markets were improving.
“A lot of other import buyers have started to re-enter the market, they were unable to pay the prices China was able to pay and they weren’t able to absorb all the milk that’s floating around on the global market.
“We have bottomed out and there are certainly signs of life in the global market,”
Supply was also starting to contract, so more normal levels were predicted within the next 12 months, which would help rebalance the market.
“China has been caught up with a lot of milk.”
In 2013-14, the Chinese faced a tough season, poor weather, high feed costs and a disease outbreak.
The Chinese imported 200,000 tonnes of product last year, than the year before.
“They overbought and are carrying inventories – some of that comes down to how aggressively they were buying.”
Australia was shielded by a strong domestic market and lower Australian dollar
“It’s going to take some time for global market to recover, don’t think it can get much weaker.”
It also resulted in forced cancellation of some projects which were in the pipeline, including one which was to take 30,000 heifers.
On the upside, Chinese growth looked very “bullish”, with sales of liquid milk in the major cities growing by one to two pc.
The opening price for milk should remain around $6 this year, as processors were likely to be quite aggressive.
“It’s hard to see where an increase on $6 will come from, because the dollar is low but it hasn’t got much more to go.
“The domestic market has been good for us, it shielded us from that fall, but there is a risk domestic prices could start to come off.
“We have been shielded from a sharp drop in prices – we might not have the scale, in productivity, but we have flexibility.”
A fifteen pc drop in farmgate prices could be compared with 45 pc in New Zealand, which was heavily reliant on exports.
But he warned it would be hard to push beyond the $6 barrier.
“As contracts are renewed, retailers will be looking at the global market and saying, it’s fallen 30 or 40pc, we want to see some of that benefit in our retail prices, we have signed up for.”
While Australia was still globally competitive, cost pressures meant the gap was closing.
“Cost control is going to still be important in maintaining competitiveness.”
There was also scope for greater partnerships with Chinese investors, who saw Australia as having a high quality product, with preferential access to markets.
“We are likely to see more of this investment as they are looking to get supply out of Australia, they are looking for partnerships, they are not looking to buy farms and run them for themselves.”
“Chinese investors want to work with local family farm businesses; it brings much needed capital and capability for the farmer and processor to deal with the market, which can be very, very complex and quite challenging.”
