Dairy prices finished 2012 on a, broadly, positive note at GlobalDairyTrade,
amid expectations of values making a firm start to next year, and of a retreat
in southern hemisphere production.
The last GlobalDairyTrade auction of the year ended with
values up 1.1% from the last event, two weeks ago, with cheddar cheese prices
leading the increase, with a rise of 6.9%.
Rennet casein, used as a thickener in products such as
cheese and coffee creamers, appreciated by 4.9%, with smaller increases in
values of skim milk powder and milk protein concentrates, a high-protein
product used in the likes of processed cheese, crackers and energy bars.
The gains more than offset a 0.6% decline in the value of
whole milk powder, which accounts for the bulk of volumes sold at the auctions.
Retreat and recovery
The result took values to within 2% of where they started
2012, although the flat finish defies sizeable volatility within the year.
Values had fallen more than 20% by May to their lowest in
nearly three years, depressed by a strong finish to the southern hemisphere
season, particularly in New Zealand, the top milk exporting country, where GlobalDairyTrade,
run by dairy giant Fonterra, is based.
Prices staged a recovery as high feed prices, and poor
weather, depressed output in major northern hemisphere producers, including the
European Union and the US.
Among major products, prices of whole milk powder - of which
New Zealand is an especially important producer, largely for the Chinese market
– fell by 8.1% over the year, while values of cheddar, a largely northern
hemisphere product, rose by 8.2%.
'Demand will be critical'
Rabobank said it forecast a further rise in values heading
into 2013, when "tighter supply dynamics continue to favour an upward trend for
dairy commodity prices.
"But the strength of demand will be critical to determining
how strong the price movements will be.
"Purchasing from key importing regions continues to provide activity,
but overall is best described as solid with not current level of urgency
"Buyers have had ample opportunity to fill inventory
pipelines at reasonable prices over recent months."
However, the early signs for spring ramp-up in northern
hemisphere production will also play a big role, as well as the strength in the
remaining peak period of the Australian and New Zealand seasons.
While New Zealand's 2012-13 season got off to a strong
start, many commentators believe it will see a softer close. New Zealand's
Ministry of Primary Industries said that "assuming a return to average climatic
conditions, milk production is expected to remain at 2011-12 levels in the
"While this equates to zero growth relative to the previous
season it nonetheless reflects high milk production relative to historic
Agrifax analysts said: "With official data showing milk
collection to be 8% ahead across the first four months of the season… the
ministry must by factoring in a significant slowdown in milk output during the
latter part of the milk production season."
'Dry conditions were
Data from industry group Dcanz this week actually showed New
Zealand milk output up 6.5% for the June-to-October period, the first five
months of 2012-13.
A strong start settled down to year-on-year growth of 3.4%
in October itself, the peak production month, with some concerns over last
"Dry conditions were threatening in some parts through November,"
Rabobank said, if adding that "widespread rain through early December has
alleviated concerns for now".
Australia's spring flush in output "passed with production
growth coming below expectation", undermined by wet weather in Victoria, the bank
October production fell 1.4% year on year.