ST. LOUIS (Feb. 2, 2012) — Solid market growth over the last five years has milk—and the products derived from it—making an unprecedented leap in value. With the substantial increase in the value of dairy, researchers at the Rabobank International Food & Agribusiness Research and Advisory (FAR) group find many along the supply chain wondering who is profiting from the bullish dairy market.
Released today, the Rabobank International Food & Agribusiness Research and Advisory (FAR) group’s “Show Me the Money!” report notes many of the profits flowing through the dairy supply chain in recent years have been absorbed by input costs for farmers or capitalized into the value of farmland. The era of strong demand and heightened prices has brought as many challenges to the sector as it has opportunities.
“Outsiders looking to enter an industry that appears to be in a golden age will need to carefully choose their investments,” notes Tim Hunt, Executive Director / Global Strategist Dairy with the Rabobank Food & Agribusiness Research and Advisory team. “To ensure they are managing risks adequately, those already in the industry will need to closely track its direction and their competitors’ moves.”
The report also finds the next five years should be characterized by solid growth, though that growth will be spread unevenly.
“The uneven growth will generate some important industry dynamics,” says Hunt. “We expect growth to be dominated by developing markets, which rely on imports to meet growing domestic demand. As a result we should see significant trade growth in the medium term, which will provide opportunity for farmers and processors alike in export regions.”
The report also delves into surplus milk and ingredients, returns for milk producers and the outlook for processors. Rabobank expects that if input costs stay high, so too, will commodity prices. The report finds growing demand in regions that are already short on milk, such as China and South East Asia, will lead to increased exports to these areas, and that the price of producing milk in these export regions is much higher than it was five years ago.
FAR finds that the position of dairy farmers has improved slightly, but not nearly as much as outsiders might imagine. In most cases, profitability has not improved enough to change the average return on assets. The profits are volatile and these operations are incurring a greater degree of risk.
The processing sector has fared reasonably well and processors have typically maintained or improved their margins, and are retaining a higher return on capital than prior to the boom, according the report’s authors. The report also finds cheese companies have weathered market volatility well, though dominant Chinese players have seen their returns deteriorate due to the melamine crisis, slow growth and rising costs.
Media can obtain the full “Show Me the Money!” report by contacting Lisa Verbeck at Rabo AgriFinance.
FAR Report Requests: Media Inquiries:
Lisa Verbeck Bob Wilhelm
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Rabo AgriFinance is a leading provider of financial services for agricultural producers and agribusinesses in the United States, adding value with industry expertise, client-focused solutions and long-term business relationships. The Rabo AgriFinance nationwide network of relationship managers, crop insurance and risk management specialists offers a comprehensive suite of services, including loans, crop insurance and sophisticated risk management products. Rabo AgriFinance is a part of Rabobank International, the premier provider to the global agriculture industry and one of the world’s largest and safest institutions. Visit www.raboag.com for more information.
About Rabobank International Food & Agribusiness Research and Advisory (FAR)
The Rabobank Food & Agribusiness Research and Advisory (FAR) group is a global team of more than 80 analysts who monitor and evaluate global market events that affect agriculture worldwide. This international team works to gather key insights into commodity markets; conduct in-depth analysis of the factors that drive sector success (or failure); and look at the megatrends that ultimately influence clients’ capital strategy. These analysts are internationally respected experts in everything from protein to produce, inputs to oilseeds, and their knowledge is shared regularly with Rabo AgriFinance customers.
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