After a weak seasonal growth in prices last autumn, decrease in average milk prices "rolled" to Russia in December 2017.
According to the Russian Dairy Research Center (RDRC), Dairy Index RDRC on 8 January 2018 amounted to 24.36 rubles/kg (without VAT, fat and protein content 3.6% and 3.0% respectively), which is 0.3% below the value of December 29, 2017 and 10.31% lower than the average value of January 2017. The index of import price continued to fall and is becoming a key factor in reducing Dairy Index RDRC. In early January, 2018 the Index of import price fell by 0.99% in comparison with the index from December 29 last year, having decreased below the current level of prices on the domestic market by 2.36%, explain analysts of the RDRC.
The price of raw milk in the "regions-importers" and "regions-exporters" of the Russian Federation remained at the level of the last week of December 2017, 26.04 rubles/kg and 23.16 rubles/kg respectively. The weighted average price for milk in the "regions-importers" and "regions-exporters" amounted to 24.53 rubles/kg, by 2.89% below the average price in January 2017.
By the way, consumer prices for milk and dairy products for 11 months of 2017 increased by 5.2%.
According to market participants, the new year period is traditionally characterized by failure in price, also due to the decrease in consumer demand for dairy group of products during holidays.
In 2017 in Russia there was a situation which had never been previously in the dairy industry: increase of milk production will be about 2-3% in Russia as a whole, and in some regions (such as CFD) growth will reach 6-7%. This happens against the background of declining of real income of the population (-) 1.4% in 2017 compared to 2016 and decrease in consumer ability (besides citizens spend money on gifts and other Christmas related items), explained Vasily Redin, Executive Director of ARMO "VEMA" (Association for the development of the dairy industry "The East-European Dairy Alliance").
"This decline has always been, but this year factors are developed in such a way that the trend was to have a pronounced dynamics. The fall of consumer ability is 5-6%, and the increase in production will be more than 2-3%. If you add up these factors and numbers, we will see that 7-9% of raw milk will remain unclaimed. Plants see this situation and begin to "game" in order to refuse the supply of raw materials, which in turn creates even more new year's eve excitement," said Vasily Redin.
According to Rosstat, milk production at agricultural enterprises for 11 months of 2017 increased by 3.7%. The Ministry of agriculture stressed that the growth in the sector of corporate farms and individual farms has to compensate for the decline in farm households.
The price is not only affected by the volume of raw milk, but also by stocks of milk powder and butter. Uncertainty in terms of commodities is maintained throughout the global market.
As stressed by the Executive Director of Soyuzmoloko Artem Belov, for the last four years the price of raw materials is estimated to have increased to 70% and now averages about 25 rubles, which is one of the highest prices in the world. As a consequence, there is an active development of the Russian players, the emergence of modernization projects and the arrival of foreign players in the sector, which led eventually to an increase in production of marketable milk.
"Unfortunately, all the positive effects that intensified the industry have been exhausted to date. In a sense, the production capacity has come into balance with the demand, which is now on the market. Pricing dynamics that we see now – there is no increase in price", - stated Artem Belov.
IN THE WORLD
The FAO (Food and agriculture organization of the United Nations) continued to decline the average value of the price Index for dairy products for a third month in a row and in December it amounted to 184.4 points, which is 19.8 points (9.7%) below November level. The presence of significant export supply combined with a sluggish demand led to lower international prices for all four dairy products included in the Index, explain analysts of the FAO.
The uncertain situation regarding the reserve stocks in the EU continues to exert a restraining influence on the international quotations of skimmed milk powder. In general the average value of the price Index FAO for dairy products in 2017 amounted to 202.2 points, which is 31,5% higher than in 2016; the prices increased most of all for butter and to a lesser extent for whole milk powder and cheese, while the quotations of skimmed milk powder remained stable.
The experts of the analytical network IFCN emphasize that in 2018 there started a new price cycle, implying a downtrend. And the entire global dairy industry will be affected by this cycle in one way or another.
"After two years of crisis the price of milk has recovered. But now we expect that a new price cycle will start. The increase in production is a logical consequence of the period of low prices, and so a new cycle will start with the downward trend," said Dr. Torsten Hemme, Managing Director of IFCN.
According to a leading analyst of "INFAGRO" Maxim Fasteev, the first half of 2018 will be marked by decline in prices worldwide both for stock dairy products and raw milk. This is indicated not only by large stocks of dairy products, but also dynamics of production of raw milk in the world.
"All key export regions are increasing production of raw materials, the same tendency is observed in Ukraine and neighboring Belarus, Russia, and Poland. This suggests that the supply of dairy products will definitely increase, and that the new volumes were not surplus, and the prices were not too low, it is necessary to increase the overall demand for milk. Here, to attract the attention of the buyer (and, taking into account the popularity of dairy substitutes), we need twice the activity of the producers themselves and government support", - suggested Maxim Fasteev.
At the same time for the CIS countries an important effect will be provided by consumer demand.
According to experts of the market, one cannot expect failures in 2018; however, the low price combined with production growth in Russia will likely halt the implementation of major investment projects, despite the growth of state support on a number of areas.
Read full article in Russian on DairyNews.ru