SUPPLY CHAIN LOGISTICS: CHINESE DEMAND KEEPS DAIRY PRICES HIGH IN 2014

CHINESE DEMAND KEEPS DAIRY PRICES HIGH IN 2014

Published December 20, 2013 in Food Product Design

Posted in News, Financial Reports, Market Research, Market Trends, Agriculture, Dairy, Dairy Management, International, Milk, Yogurt, Frozen / Refrigerated Foods, Refrigerated Foods, Frozen Foods,Soy, Corn, Processing

NEW YORK—The global dairy industry can expect continued high prices in 2014 due to high Chinese demand, according to a new report from Rabobank.

According to the report, international dairy commodity prices strengthened from already high levels and are expected to remain high at least for the first half of 2014. The increase of export supply since September, as producers have responded to improved margins, has been largely soaked up by continuing vigorous buying from China.

"Global prices have remained high despite the taps being turned on in key export regions," said Rabobank analyst Tim Hunt. "China continues to buy exceptionally large volumes of product from the international market to supplement falling local milk supply and this is likely to mop up most, if not all, of the increase in exports arising from key surplus regions in Q4."

The global dairy market will enter 2014 with farmgate milk prices at record or near record highs in many export and import regions. Meanwhile the prices of commodity feeds, such as soybeans and corn, have fallen 10%-40% below prior year levels, opening up large margins for milk producers in intensive feeding regions.

Despite a small softening in prices in October and November, global prices have remained high due to an uptick in December. By mid-December, Whole Milk Powder (WMP) held above $5,000 per ton in fob Oceania trade, while prices of other key commodities rose between 3% and 5%, as Southern Hemisphere processors switched milk type towards the higher-yielding WMP.

China's buying has left the rest of the buy-side of the international market with less supply to go around, keeping the market tight. With export supply still in the early stages of recovery, prices edged up even further in Q4 to ration supply.

The report predicts a further increase in China's dairy purchases from the world market in 2014. A strong Northern Hemisphere production season, following on from an exceptional season in the Southern Hemisphere should generate more than enough exportable supply to exceed China's additional demand, the report says.

Sources:

• Rabobank: Dairy Quarterly Q4: dairy pricing set to continue at high levels in 2014 due to Chinese demand

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INFANT FORMULA UPDATE: China market

INFANT FORMULA UPDATE: China market

According to Dairy Products China News 1311 issued by CCM in November 2013, In order to support the work of central government in promoting the safety and quality of infant formula, on 27 September, China’s Administration for Quality Supervision and Inspection and Quarantine (AQSIQ) issued a notice—Strengthening Supervision of Imported Infant Formula.

Requirements for imported infant formula are announced as follows:

• Foreign infant formula processors exporting to China are required to register locally in line with the Administrative Measures for Import and Export Dairy Products’ Inspection, Quarantine and Supervision (please see Dairy Products China News, Vol. 6 March issue, P7) and Administrative Regulation of Register for Foreign Food Producers Exporting to China. Unregistered foreign infant formula processors will be prohibited from exporting to China from 1 May, 2014.

• The imported infant formula’s shelf life must be more than 3 months from the date of inspection

• Imported infant formula must be pre-packaged for retail to avoid repacking and redistribution

• From 1 April 2014, imported infant formula packs must have pre-printed Chinese labels. Any such formula without Chinese labels or with labels that fail to meet Chinese laws will be returned or destroyed

These measures can be seen as part of the wider change of the governmental direction in several aspects:

• Increasing supervision by government and society, with emphasis on dairy enterprises showing self-discipline. The consistent theme of the governmental policies and regulations is to increase supervision and to encourage consumers to participate in this process. Alongside this, the government has also established an enterprise credit system, aiming to make food enterprises more transparent and hence more disciplined in their operations—especially the infant formula manufacturers

• Stricter and more detailed standards for infant formula products and manufacturers. Compared with the previous versions, the latest standards for infant formula products and their manufacturers are stricter and more specific, providing more details and practical measures for the government

• Promoting the restructuring of the industry. The government has taken many actions to promote this, the latest report about restructuring the country’s infant formula production being just one of these

• Supporting the domestic industry. The government has taken actions such as strengthening supervision of import/export trade in dairy products, online sales of dairy products, and the anti-monopoly investigation. It is clear that the main beneficiaries of such efforts will be the leading domestic dairy companies

A number of the impacts from the changed governmental direction may be summarized as follows:

• Improved consumer confidence and demand. Undoubtedly, the governmental moves have gone some way to rebuild consumer confidence, thus boosting demand.

• Increasing imports of dairy ingredients. Stronger demand and some of the changes in local milk supply have led to increasing demand for imported dairy ingredients and some finished products, a trend which will last for the foreseeable future.

• Fiercer competition. The increased focus on restructuring the industry—and especially the 128 local infant formula manufacturers—has combined with more and more domestic and multinational players entering the market to make competition still more intense, especially amongst domestic companies.

• More cooperation. The fiercer competition will also facilitate greater cooperation between domestic and multinational companies as they position themselves for a rationalized industry in the future.

• Price. Two main pricing trends are evident, as premium products are priced ever higher whilst mid-market and low-end products remain relatively stable. Overall, though, price levels will increase due to the increasing costs caused by the stricter standards and the impact this has on the raw materials used.

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