Chinese Dairy Heifer Demand—Has the Ship Sailed?

Following several years of solid Chinese demand for dairy heifers—with a real high in 2014—a change in market forces will likely mean a return to a period of lower trade volumes of dairy heifers and, subsequently, more stable pricing. What is driving these changes?

Picture of dairy cows in Australia

China has been the engine of growth in trade for dairy heifers

Demand in 2014 was at a record high for several reasons. Domestic milk production was increased to meet the growing dairy demand. There was a need to replenish herds, following both a disease outbreak and high culling rates on the back of attractive beef prices. Additionally, there was a desire to improve genetic composition across the farm sector.

The foot is off the accelerator now

A change in market forces, leads to a more cautious and volatile outlook for Chinese heifer demand in the medium term. 2015 has seen a slowdown in shipments of dairy heifers to China because investment in large-scale farms has slowed and because culling rates have fallen to more normal levels on most farms, in the absence of any major disease outbreak this year. The economy is facing a slowing period of economic growth, and in some consumer markets, dairy demand growth is reaching a level of natural maturity. We also see that many large-scale farms that have been in operation for a number of years now have greater capacity and self-sufficiency to raise their own heifers. So far in 2015—to the end of September—Oceania exports of dairy heifers to China have fallen to 26,000 head and accounted for just 41 percent of all trade. As a result, prices have fallen by close to 30 percent. But looking forward, China will still present trade opportunities.

China will remain a key buyer

Despite the current slowdown, several structural factors support permanent trade opportunities to China. Farm restructuring remains a priority in China with the new wave of investment in large-scale farm projects potentially triggering another boom period for dairy heifer demand. Chinese heifer demand will, however, remain volatile in nature. Disease for example, remains a key risk for the Chinese dairy herd.

So while the ship has not sailed, the trade winds have definitely calmed.  Rabobank believes China will remain a major market for export dairy heifers but exporters and traders will need to refocus and carefully weigh up the market opportunities.

More details can be found in the report 'Chinese Dairy Heifer Demand—Has the Ship Sailed?'

Where to go from here