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by Hugh Stringleman
Shortages of dairy products and beef are showing up in better milk and meat prices for farmers in the main exporting countries.
Milk powder prices have already responded dramatically, leading some farm leaders to speculate on a return to the record levels of 2008, during the commodities boom and before the global financial crisis.
United States beef prices are also at their second-highest level in modern times, because herds are smaller in major cattle farming countries than they have been for decades.
Sheepmeats are also in short supply from New Zealand, which is the world's largest exporter of lamb, in Australia and in the UK and Europe.
The supply and demand balance has swung firmly in favour of farmers, which will further boost world prices and perhaps threaten the records set two years ago.
Many informed commentators continue to predict that economic recovery, biofuel demand, rising wealth and growing populations are putting the squeeze on food supplies. That's why the 2008 price records, for dairy products, meats, grains and nutrients, may be a foretaste of what is to come.
Less certain, however, is whether the latest price rises are the start of something big or a temporary spike between the Northern and Southern Hemisphere production seasons.
The most unexpected jump in world pricing recently occurred when New Zealand's giant Fonterra dairy exporter conducted its April global TradeDairy auction and after months of steady prices suddenly recorded 21% lift in milk powder prices.
News of the spreading drought in northern New Zealand, which will sharply curtail the current season, combined with news of Australia's similar predicament and registered buyers, especially from China, rushed to participate in the latest auction.
However, when the northern hemisphere spring milk flushes are processed and export product availability gauged, world prices could settle down again.
NZX Agrifax reported that subsequent quotations and sales were US$200/tonne below the near-spot levels achieved in the global Dairy Trade (gDT) event.
“Current indications are that prices achieved in the gDT will not be in the wider market during the coming weeks,” NZX Agrifax said.
Federated Farmers dairy chairman Lachlan McKenzie has predicted that New Zealand production in the 2009-10 season could be down 2% on the previous season, although Fonterra will only concede that milk flows are drying rapidly and the result may be below forecast.
Meanwhile an impressive recovery in soil moisture and pasture growth in Australian dairying regions has come too late to boost the 2009-10 season's milk production, but it has set up next season.
Australian milk production and its dairy product exports will recover next season as feed costs have already fallen and much more irrigation water will be available.
Recent rain combined with increases in farmgate prices means Australian dairy farmers are generally more optimistic going into the 2010 season than they were at the same time last year, according to Heather Stacy, national milk services manager for Fonterra in Australia.
“We are not expecting any great changes in autumn and winter milk production as a result of the rain, but it is a positive early step for a good 2010 season,” she said.
Milk production in the current season is running about 8-9% behind 2008-09, which has contributed to the nervousness about Australasian dairy product supplies.
Although European milk production during the winter was restricted by bad weather, there are signs of a spring build-up. The weakness of the Euro is expected to greatly assist European exporters during their 2010 peak production.
In the UK, National Farmers Union dairy chairman Mansel Raymond has gone on the offensive, claiming that retailers are misleading farmers about the state of the milk market and that prices rises are long overdue.
He used the Fonterra gDT auction result and disclosed that UK milk production in 2009-10 fell by 0.3%, the sixth consecutive year of reduction.
Raymond said all the current market conditions provide “strong grounds for a sizeable increase, which leaves some very serious questions about why farmers are yet to see this reflected in their milk cheques.”
Meanwhile low supply volumes of beef in the major exporting and consuming countries are keeping up prices around the world.
For example, US beef import prices are 30% higher than 12 months ago, although still 20% below the record reached during the short-lived spike in 2008 at the height of the commodity price boom.
The United States, as the largest importer of beef, holds the key to beef pricing in New Zealand and Australia. Its own herd is now rebuilding, after a liquidation phase prolonged by droughts and poor returns for cow/calf producers and feedlots.
Australia is also in a herd rebuilding phase, with a predicted 4% fall in slaughter cattle this season (to June 30) compared to last season.
Meat & Livestock Australia (MLA) is forecasting that total beef export volume will fall 5.7% or 50,000 tonnes in 2009-10.
Canada's cattle numbers have fallen 6.3% over the past two years and are currently at 15-year lows. The number of cattle slaughtered during 2009 was 4% down on the previous year.
Brazil's Agriculture Minister, Reinhold Stephanes, recently claimed that country's herd capacity would be able to increase beef exports by 20% in 2010, but his meat exporters face considerable challenges.
The cattle herd is nearly 200 million, based on Bos indicus rather than Bos taurus, and foot-and-mouth disease is endemic in many states and farming regions.
During 2009 Brazil exported about 800,000 tonnes of beef, slightly more than Australia, of which 126,000 tonnes went to Europe, much of it cooked and canned because of FMD.
However an issue with the EU over traceability saw the authorised 10,000 Brazilian farms for beef imports slashed to 100 overnight in early 2008.
Painstaking audits by EU officials have increased the number to 1900 presently, but Brazil's capacity to export to Europe is still constrained.
Brazil is targeting emerging beef markets in Russia, the Middle East, North Africa and China for its increased export availability, according to the MLA.