Fundamentals for the global dairy industry should gradually improve through 2010, before a more robust market emerges from 2011, according to an analysis issued today by Rabobank Australia.

In the near-term, the bank expects to see modest demand improvement, small reductions in exportable supply, the gradual selling down of intervention stocks in the US and EU and a softening of Chinese import volumes.

Beyond 2010, the market is expected to return to solid rates of demand growth, driven by rising per capita incomes, population growth, urbanisation, Westernisation of diets and government promotion, it said.

“Rabobank anticipates there will be a transition into a more compelling picture for investors beyond the immediate aftermath of the global financial crisis and into the medium term," said the report's author, Rabobank senior analyst Tim Hunt. Actual prices weren't given in the Rabobank statement quoting Mr Hunt.

Australia typically supplies 10-15 percent of global traded dairy products, depending on production levels. New Zealand's Fonterra Dairy Co-operative Group is the world's biggest dairy exporter.

Rabobank said the most spectacular boom/bust cycle in the history of dairy ended in 2009, after international dairy prices doubled in 2007 to levels never previously contemplated, before halving in 2008.

The industry is showing significant signs of recovery in the last several months of 2009, with “a brutal chapter” evident for the industry earlier this year drawing to a close, according to the report.

After prices bottomed around July, buying increased as the world economy steadied, but buyers returning to the market found milk production had fallen after being unprofitable for 12 months, it said.
As a result, prices of dairy products were squeezed higher, in some cases almost doubling in the five months ended early December.

Much of the growing appetite for dairy products will be met by local production, but there will still be a significant number of countries that rely on imports to meet their growing needs, the report said.

This will provide increased opportunities for cost-competitive export suppliers to capture profitable growth in market share, it said.

Source: The Australian / Dow Jones Newswires

http://www.theaustralian.com.au/business/industry-sectors/global-dairy-industry-to-pick-up-for-robust-2011/story-e6frg95o-1225809131639