Is a supply led recovery a lesser being than a demand driven one?
Now that global dairy prices are staging a meaningful recovery, which at long last is translating into higher milk prices, it is interesting to hear and read some commentary suggesting that the recovery is somehow suspicious or less sustainable for being due mainly to falling/slowing global milk output.
To be fair, it is clear that strongly growing, affluent demand is an important part of a balanced market.
Demand would be strengthened by the return of Russia to the market, an increase in oil prices, and greater purchasing power in the SE Asian, Middle Eastern and African markets that import dairy products. In many of our markets consumers are price sensitive, and some are suffering from a variety of demand sapping geopolitical crises (Syria, Iran and more). The truth is that we should always be weary of fast rising commodity prices actually burning out demand.
However, demand has not been in the doldrums. Global trade has grown strongly throughout 2015 and 16 – admittedly partly on the back of lower commodity prices.
China has returned to markets in 2016, for powder, infant formula and (in smaller volumes) for UHT milk and cheese.
Also all sorts of factors can lead to volatile commodity prices. The build-up of global surpluses over the last 2 ½ years, not the failure of demand, was the main reason for the slump we have just lived through.
Commodity price decreases, and now thankfully increases are not any less real if they are mainly caused by supply factors.
Improved product prices – whatever their cause – must be passed back to hard pressed producers who have just suffered over 2 years of non-stop falling milk prices and need every last cent to catch up with business bills and provide for their families.
Lower output trend continues
Total EU 28 milk production has fallen below last year’s level for the first time in June, by 1.6% (see graph)