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Chinese dairy demand rallies, world production stabilises

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The dairy market is inching toward balance, as low prices prompt falling production on New Zealand, the world's top exporter, while demand from China and Latin America rises.

Fonterra's, the New Zealand based dairy co-operative, which accounts for the bulk of country's production, announced that collections in New Zealand were down by 3.3% in the 10 months to March, Fonterra said.

Collections in March were down 2.4%, at 136.1m kilogrammes of milk solids.

Low price environment

"Lower milk collections for the 2015-16 season are largely a result of the low milk price environment, where farmers are continuing to reduce stocking rates and supplementary feeding in order to reduce costs," Fonterra said.

Production for the rest of the New Zealand season ending May 31 "will continue to be influenced by changes in farming systems, such as decreased stocking rates and supplementary feeding, as farmers respond to the low milk price environment", said Fonterra.

DCANZ, the New Zealand dairy producers group, reported that all milk production in the country was down 1.7% year on year.

Tobin Gorey, at Commonwealth Bank of Australia, said the drop was "still less than we would like to see, but a fall nonetheless".

Milk production stabilises

The rate of milk production growth in the European Union has stabilized, while easing in the other major exporting countries, Fonterra said.

Production in the EU was up 5% in January, Fonterra said, but the European Union has forecast production up by just 1% over the whole of 2016.

In the US, the rate of milk production growth "continues to slow," Fonterra said, as the USDA forecast production up by 1% over 2016.

Chinese demand rises

Fonterra's imports into China, the world's top dairy buyer, jumped by 14% year-on-year, with demand for infant formula up 38%.

Imports to China over 12 months to February were up 6%.

And demand from other key areas is strong as well, with imports to Latin America up 10% in 2015, and imports to Asia, excluding China, up 8%.

But buying from the Middle East and Africa looks more muted, up just 1% over 2015, and actually down 9% in December, compared to the same period a year before.


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