Rabobank: Muted Chinese demand keeps dairy pricing low

Surplus supply of milk and other dairy products is driving down prices on the international market.

China’s dairy purchasing power is set to fall over the next 12 months as the country focuses on consuming supplies accumulated during the first half of 2014, according to a recent report by Rabobank analysts.

China’s slacking demand combined with strong production in various global markets globally will contribute to continuing muted dairy prices.

Milk producer and export markets are revising down their pricing forecasts. New Zealand’s Fonterra has reduced its pricing forecast for the 2014/15 season to NZ$5.3/kg milk solids, some 37 percent below last season’s record high.

New Zealand is home to a few dairy-focused investment funds such as Southern Pastures and Craigmore Sustainables, which have both attracted institutional investment. Most recently New Mexico Education Retirement Board committed $30 million to Southern Pastures and Craigmore held a final close on NZ$200 million.

Other institutional investors in the sector include Singapore sovereign wealth fund GIC which has a stake in Huaxia Dairy Group.

Analysts at Rabobank forecast that low pricing conditions will remain for much of next year with a price recovery in the third quarter of 2015.

Dairy commodity prices 2006-2014

Dairy commodity prices, according to Rabobank
Dairy commodity prices 2006-2014. Source: Rabobank