A panel global dairy insiders says that the first half of 2011 could be troublesome for producers, but things will improve markedly by the second half—maybe.
“We see softer conditions in early 2011, but explosive conditions later in the year,” says Phil Plourd, a dairy analyst with Blimling and Associates, Cottage Grove, Wis. “$14 milk and $6 or $5.50/bu corn will cause production to slip.” But as production weakens, in late spring, prices could turn and profitability could return, he says.
“The bearish dynamics for 2011 are real,” adds Dalyn Dye, President and CEO of Hoogwegt U.S., Inc, based in Libertyville, Ill. “We’re seeing more production growth (in both the U.S. and Europe), heavy intervention levels of cheese in the United States and power in the European Union, and higher dairy prices reaching consumers in the U.S. this fall and into winter.
“On the bullish side: Higher feed prices, lack of capital for expansion, strong demand in China, and there’s always the potential for a weather or political event somewhere in the world to cause a supply disruption.”
Both Plourd and Dye, along with Jon Hauser, editor/publisher of Xcheque.com, based in Australia, participated in a Dairy Outlook 2011 webinar this afternoon sponsored by the U.S. Dairy Export Council and Dairy Foods Magazine.
The key factors to watch for hints of 2011 dairy market performance are continued imports by China and U.S. domestic demand, says Plourd. If either falters, a second-half recovery will be less robust.
“The surge of imports of whole milk powder into China is a relatively recent occurrence,” adds Dye. “We have to be wary of that” because there’s no assurance it will continue into the foreseeable future. In addition, China is trying to build its own internal milk production that will eventually displace some imports.
Hauser adds that U.S. and European milk production will also be key. “We’ll have weaker markets in 2011 unless the United States and Europe slow down production growth.”
