Difficult relationship: why are prices for dairy products rising in the world?
The results of the auction on the New Zealand trading platform Global Dairy Trade (GDT) showed an increase in the global price index for dairy products by 6.7%. The value was a record since November 2016.
Whole milk powder went up in price most of all – by 8.4% (up to $3 thousand per ton). Butter - by 4.2% (up to $4.4 thousand), skim milk powder - by 3.9% (up to $2.5 thousand), dehydrated milk fat - by 5.8% (up to $5.5 thousand), cheddar cheese — by 1.4%, up to $3.5 thousand.
It is noteworthy that after a continuous six-month decline, the GDT index shows growth for five trading sessions in a row. To date, the indicator has reached the level of 1005 points for the first time since June 2018
As it was explained by Director of the Russian Dairy Research Center Mikhail Mishchenko in an interview with RT, the decline in prices in the first half of 2018 was caused by high volumes of milk powder in Europe. Thus, a significant surplus of raw materials was formed in the global market, the supply increased, and dairy products began to fall in price. However, according to Mishchenko, now the EU has managed to sell out own reserves completely. This led to a rise in the cost of milk in the world.
The total sale of European stocks took place against the background of a slowdown in milk production in the EU — largely due to drought and deterioration in the quality of livestock feed. This is stated in the report of the Dutch international Bank Rabobank. According to experts of the organization, in 2018 Australia, another major dairy producer, faced a similar problem.
In addition, the reduction in livestock led to an increase in milk production in the US by only 1% in 2018. The value was the lowest in the last five years. Mishchenko did not exclude a production decline in the dairy industry in New Zealand.
According to the forecast of economists of Rabobank, in 2019 the price of dairy products in the world will move in different directions. For example, compared with the final values of 2018, the cost of whole milk in Europe by the end of the year will remain unchanged (at the level of €2.7 thousand per ton), in South America it will decrease by 2.3% (to $2.95 thousand), and in Oceania it will grow by 13% (to $3 thousand). In turn, butter in the EU may fall in price by 0.5% (up to $4.5 thousand per ton), and in the US — to go up in price by 2.4% (up to $5 thousand.)
"The dynamics of prices largely depends on the costs in the industry and one-time factors of forage yield. If the second is extremely difficult to predict, the costs will largely depend on the overall growth of inflation, wages and fuel prices", — said analyst from "BCS Broker" Konstantin Karpov in an interview with RT.
According to the expert, the global oil market should not expect a serious increase in fuel prices in 2019. Against this background, according to the analyst, the cost of dairy products in the producing countries may begin to gradually decline in the coming months.
Mikhail Mishchenko also believes that the rapid increase in the cost of dairy products may eventually turn into another drop in prices. The expert explains this by constant volatility of the market, as well as the ability of Europe to re-increase the volume of raw milk reserves.
Moreover, according to Mishchenko, geopolitical factors add uncertainty to the market. In particular, a "hard" Brexit - Britain's exit from the EU without an agreement can make serious pressure on milk prices.
Such a scenario would lead to the introduction of customs duties as well as other trade barriers between the EU and the United Kingdom. As a result, London will no longer be able to import European cheeses, butter and milk in the same volumes and additional surpluses of dairy products will be formed in the Union countries and global prices will begin to fall.
Experts also note the negative impact of U.S. trade wars on the global dairy market. Thus, according to the report of Rabobank, the tariff confrontation between the States and China and Mexico provoked the cheapening of American cheese and whey powder.
Direct impact
In January Russian dairy products rose by 0.6% compared to December. At the same time, over the past year, the price of milk in the country increased by 3.2%. Such data is indicated by Rosstat.
As noted by Mishchenko, the global dynamics directly affects the Russian market. Thus, any change in the GDT index influences the cost of national dairy products. Moreover, according to the expert, almost 80% of milk, cheese and butter supplies to Russia come from Belarus. Thus, fluctuations in Belarusian prices also play an important role for Russia.
In addition, according to Mishchenko, the cost of Russian milk depends on internal indicators. First of all, we are talking about the seasonality factor, traditionally high prices for raw milk in Russia, as well as the recent increase in VAT by two percentage points.
Meanwhile, as noted by Mishchenko, today in Russia there is a seasonal drop in prices in the dairy market. According to him, the overall price growth began to slow down, and in some regions a gradual decline began. At the same time in case of expected further fall in the GDT index in 2019, the price of Russian dairy products can further decrease.
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