Hopes of reviving order growth to instil a recovery in dairy
prices received a double whammy when FrieslandCampina cautioned of an "uncertain"
outlook, while Westland Milk Products warned of "lacklustre" Chinese demand.
Dutch-based FrieslandCampina said that global supplies of milk,
whose increase has been one factor in a tumble in dairy prices, will "increase
still further in 2014", with prospects strong longer-term for European Union
output, prospects for which are being boosted by the ditching of production
Indeed, FrieslandCampina said that much of an E652m
investment budget for 2014 is being spent on boosting capacity at processing
plants to cope with "the expected increase in the quantity of milk supplied by member
dairy farmers from 2015 – the year in which the milk quota will expire".
European Union milk production volumes rose 5% year on year in
the first half of 2014, including a 3.5% increase in the group's core Dutch market.
However, "how the demand will develop is uncertain", the co-operative
said, adding that "in a number of European countries the markets will remain under
The pressures for EU groups are being exacerbated by a
Russian ban on imports of many foods, including dairy products, from the bloc, sanctions
which have prompted the European Commission to mull providing storage aid to quell
the flood of product onto domestic markets instead.
"As a consequence of the Russian boycott of dairy products,
alternative products and markets must be found to offset the volume of milk
exported to Russia, primarily in the form of cheese," FrieslandCampina said.
The group's exports to Russia amounted to E190m last year.
The comments come amid a continued debate about the impact
of Russia's ban, and indeed prospects for dairy markets worldwide given
dynamics of stronger production and question markets over demand, particularly
from China, the top importing country, where buyers are believed to have built
up large inventories.
Fonterra, the world's top milk exporter, on Wednesday said that
"current market views supported by our own forecasting indicate commodity
prices improving later this year or in early 2015, with global demand for dairy
continuing to grow year on year".
The co-operative kept at NZ$6.00 per kilogramme of milk
solids its forecast for payouts to farmers in 2014-15.
However, overnight, smaller New Zealand rival Westland cut its
price forecast to NZ$5.40-5.80 per kilogramme of milk solids, from NZ$6.00-6.40,
citing "falls in [dairy] prices across the globe".
Demand from China is "still lacklustre", said Rod Quin, the
Westland chief executive, adding that stock levels held by distributors and customers
was "reportedly high".
"Higher prices last season caused a growth in milk supply
growth in Europe, the US and New Zealand, giving customers more options," Mr
FrieslandCampina reported earnings of E104m for the first
half of 2014.
While revenues rose 2.5% at E5.71bn, reflecting higher sales
prices, the increases failed to keep up with the raised costs of milk, for
which the co-operative paid farmers a guaranteed price of E42.07 per 100
kilogrammes, up 13.6%.
"The most robust growth was achieved in China, Hong Kong and
the Philippines," the co-operative said, noting increased volumes in particular
of infant nutrition sales.
"Sales volumes of dairy-based beverages, cheese and
ingredients, however, decreased due to unfavourable market conditions in
Europe, Indonesia and Vietnam."