Stay updated with us in 2012! Our monthly update will focus on latest dairy industry developments, always focusing on local as well as global highlights.

Against a backdrop of economic uncertainty, the agricultural sector stood as a shining example of growth last year.

The global dairy markets in early 2011 experienced a surge in prices as strong global import demand for dairy products exceeded available supplies. According to USDA’s World Dairy Market Outlook, major producing countries, expanded milk production significantly in 2011.

In the second half of 2011, in addition to unfavorable weather conditions in the Oceania’s, dairy markets were under strain due to the growing caution by buyers as the increasingly volatile financial situation in the EU grew to dominate the financial outlook.

In 2012 dairy market growth in the EU is forecasted to slow down slightly, as higher costs of production and the ongoing financial uncertainty are expected reduce expansion plans. According to Eurostat, the great challenges for the agricultural sector in Europe will be how some of the countries will sustain production prices rising more slowly than production costs.

For the German dairy industry the past year has been a good one as the milk market has finally stabilized, leading to an increase of milk production (29.8 million tons). The DBV (Deutcher Bauernverband), expects this trend to continue in 2012.

In the US, 2011 set records, with net farm income topping $100 billion for the first time ever. According to USDA reports, US farm income rose 28 per cent in 2011 compared to the previous year. However, in 2012, dairy farmers are expected to face lower milk prices and relatively higher feed costs, which in turn is expected to pressure returns.

Looking a the global market in 2012, milk production in the major producing countries is forecasted to be moderate, while import demands for dairy products will remain relatively stable, as developing countries are expected continue to grow economically. Consequently, it appears that the price correction for dairy commodities may be over and that there will be some price stability in 2012.

From a global economic standpoint, the outlook for 2012 is positive with global GDP slated to grow from a 2.7 per cent rate in 2011 to a 2.9 per cent rate in 2012. In the critical Asian and Oceania markets, GDP growth is expected to expand at a five per cent rate – up from the 4.2 per cent estimated for 2011.

Lastly, according to the Rabobank Outlook, there are four key variables that will be critical to the success of the entire dairy sector in 2012.
1. Risk of economic slowdown
2. Speculators and the US dollar
3. Policy risks (especially within the EU)
4. Global capacity constraints

Jonathan Menz