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Danone delays forecast for revival in dairy prices

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Danone, a huge milk buyer, put back to next year the date when it sees world milk prices reviving, citing the continued pressure on the market from China and Russia.

Cecile Cabanis, chief financial officer at the French-based group, said that "with today's assumptions, we expect now a later rebound in the milk price… [to] probably the first half of next year".

Ms Cabanis had in April forecast "a rebound between the third-fourth quarters and the beginning of next year".

She added in her latest comments that "we continue to assume inflation back in 2016".

'Less inflationary situation'

The prospect of a further delay in a dairy prices follows a continued decline in values on international markets, with an index at benchmark GlobalDairyTrade auctions of physical commodities falling this month to a 13-year low.

Values have been undermined by a continued imbalance between resilient production in the likes of the European Union, which ditched output quotas in April, and New Zealand and a long-than-expected stand-off by Chinese buyers, who had amassed strong inventories, and are seeing exploiting improved domestic milk output.

Emmanuel Faber, the Danone chief executive, highlighted that enhanced promotions among dairy products within China reflected "probably a level of comfort that the pricing in milk will not go back [up] very soon in China, very soon meaning a matter of months".

He also highlighted the decision by Russia to extend to August 2016 its ban on imports of many ag products, such as dairy, from exporters such as the EU, a factor which has left more product spilling over onto other markets.

Russia's decision "is one of the reasons why Cecile said we'll probably see a little bit longer period of less inflationary situation in milk", Mr Faber told investors.

Price recovery debate

Danone's delay to its expectation of a milk price recovery contrasts with a forecast last week from Bank of New Zealand that a revival in values will occur "from late 2015".

"We are of the view that prices remain weak near term, but will recover over the following 12 months," Bank of New Zealand senior economist Doug Steel said.

However, Rabobank last week said that "given the current conditions, a recovery phase for international [dairy] prices will not occur until early 2016.

"Inventories have been rebuilt across many key import regions, meaning buyers are now well-covered," Rabobank said.

"Russia trade bans have been extended, keeping them out of the market, while China is not expected to begin significant import programmes until early next year."


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