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Dean Foods boss cautions over global milk price prospects

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The drop in world milk prices may not be over, the head of Dean Foods said, flagging the prospect of a further increase in world production this year, and noting Russia's "vigorously enforced" import ban.

Gregg Tanner, the Dean Foods chief executive, acknowledged that growth in world milk supplies was "slowing due to falling prices", which offer producers less incentive to expand output.

However, milk production in the key exporting countries "is expected to increase through 2015" nonetheless, albeit at a "slower pace" than that last year, when heavy volumes led to a halving in prices at New Zealand's much-watched GlobalDairyTrade auctions.

As a processor, and thus a buyer of raw milk, "global fundamentals should remain supportive" to Dean Foods, Mr Tanner said.

'Supply momentum'

In Dean Foods' native US, the group foresaw "ongoing supply momentum" as growth in overall herd numbers and milk yields "more than offset the impact from the continued drought in California".

In the European Union, where production quotas were removed last month, output will grow by 1% in the second half of 2015, Mr Tanner said.

"Even New Zealand," the top milk exporting country, where output was threatened by drought earlier in 2015, "is anticipated to have a relatively flat year-over-year milk solids production level… following improved moisture levels in March".

And China, better known as a dairy importer, "appears to have improved its domestic supply to demand balance following heavy dairy investment", which has come from both domestic investors and foreign group such as New Zealand's Fonterra.

'Reduced global prices'

Indeed, Chinese import demand for milk powder products has "remained significantly below year prior levels".

Meanwhile, orders from Russia - another key import market, but which has banned purchases from many Western countries in a tit-for-tat sanctions move – are "being vigorously enforced", a factor which "has disrupted trade flows leading", and led to increased competition as product is diverted to other markets.

Mr Tanner highlighted the decline in values at GlobalDairyTrade, where they hit a six-year low at the latest event, "which could result in reduced global [milk] prices in the upcoming months".

Currency threat

Separately, Commonwealth Bank of Australia issued a caution over a dent to dairy price prospects from a weakening New Zealand dollar, which was undermining the signal from world markets for low prices to curtail milk output.

"The New Zealand dollar's continued tumble is restoring competitiveness to New Zealand dairy farmers. That might prove to be a negative for global dairy prices," said CBA analyst Tobin Gorey.

"Right now, the world needs a little less dairy produce and New Zealand, as the dominant swing dairy exporter, will need to shave production.

"Global US dollar dairy prices are lower to give the right signal. A weaker kiwi dollar, though, offsets that signal."

By Agrimoney.com

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