Dairy outlook from MPO

12 Mar 2012

The Milk Producers' Organisation (MPO) released its production figures and outlook for the forthcoming months in the dairy industry in South Africa, indicating that while production is lower, producer prices have recovered.

Milk production during January 2012 is marginally down on January 2011 but the MPO believes that an average producer price of R4.00 per litre is possible in the coming months. While the increase in producer prices brings some relief to farmers, it will probably not result in a sharp increase in production in the coming autumn and winter.

The total dairy market is conservatively estimated to grow at 4% to 5% per year, with higher growth in the demand for value-added products. This is not yet reflected in total demand estimates. International product prices in rand terms are lower than a year ago, mainly because of the strengthening of the Rand since January.

International producer prices were slightly down in December, compared to the same month last year, mainly caused by Rand strength, with the exception of US prices (23% increase).

The total imports during 2011 increased by 23% and the total exports by 39%, resulting in a slight increase in net imports. Exports grew steadily during 2011 and indications are that this will continue. In January 2012, dairy products equivalent to 15.7-million litres were imported and 9.7-million litres exported.

Outlook

Internationally higher production in 2011 did not result in higher stocks as exports increased substantially. Further growth in exports is expected. European intervention stocks are at very low levels.

Global product prices decreased somewhat during the first two months of 2012. Although prices are currently below the 2012 peak, prices are still substantially higher than during the recession. While global financial uncertainty remains, the sharp growth in demand especially in Asian countries will exceed any possible reduction in first world demand. Global long-term expectations remain positive, albeit with some downside uncertainty.

In South Africa, milk production has passed its peak and is now on the downwards phase of the cycle. Production during the coming autumn and winter will probably not exceed production during 2011. There are concerns about the availability of maize until harvest time. Steady demand growth will put further pressure on dairy supplies.