Marc Beck, executive vice president of strategy and insights at the USDEC, said much of Europe’s milk has turned into powder during this period of overproduction.
In China, where Beck said it is hard to calculate numbers, the growing in-country milk production is predicted to maintain good supply. Beck was speaking during a recent USDEC webinar.
Prices must rise for recovery
In order for the dairy market to see a recovery, there will have to be a sustained building of prices that will allow for attractive margins to be returned to the farm. In his “perfect scenario,” Beck said there will need to be floor prices equivalent to $3,000 per ton, and ideally $3,500 per ton, to have real recovery.
“We need to get markets back up in balance,” he said. “One of the things we’re feeling is the markets today seem to be highly sensitive, given the strain [the] supply chain is undergoing now … It will endure some continued volatility. It’s a market that is highly emotional.”
The dairy market is sensitive, Beck said, so there will be short-term “bumps” along the way to recovery. Real recovery, he said, likely won’t come until the third or fourth quarter of 2016.
“I think we also need to see a stronger demand expansion that can help lift what the market has lost, if you will, from China and Russia,” he said. “These are large asks; for that reason, I think we probably are going to have to get through the first and second quarter before we start to see some changes of prices.”
Can cheese, whey and protein help?
Beck believes cheese prices returning to normal are just as important as powder prices to the dairy market. Global cheese prices are running below average right now. Prices, which have a 10-year average of $3,865 per ton, are currently at about $3,000.
“We’ll have to see further expansion in fast food and the food service sector that can end up [increasing] price levels,” he said.
Alan Levitt, vice president of communications at the USDEC, said protein will remain important for the foreseeable future, even though it has been weak for the past year-and-a-half. However, Levitt said the population is still increasing and this will be an area of focus for dairy producers.
Beck said whey protein in particular can have some great conversions in the global market.