WELLINGTON, April 28 (Reuters) - New Zealand-based Fonterra Co-operative Group (FCG), the world's top dairy exporter, said it was seeing a strong growth in imports by China, Asia and Latin America, offering a glimmer of hope for dairy farmers hit hard by a global oversupply.
Around 85 percent of New Zealand dairy farmers are operating at a loss as prices have more than halved since early 2014 amid slower growth in China and a global surplus. But purchases by the key consumer have perked up this year on a drop in domestic stockpiles, analysts say.
Fonterra said on Thursday that its imports into China jumped 14 percent year-on-year in February, with significant increases across most of the major dairy categories. Imports for the 12 months to February rose 6 percent.
Earlier this week, Australia's biggest dairy producer, Murray Goulburn Co-operative Co Ltd (MGC) issued a profit warning, citing slow China sales, but analysts say the forecast could have been driven by issues specific to the company rather than the general milk market.
"There has been an improvement in imports into China," said BNZ Senior Economist Doug Steel, adding that price action on the twice-monthly GlobalDairyTrade auction also suggests "some more buying as well".
"Our feeling is the extreme excess we saw a year or so ago in stockpiles in China has been coming out. If that is true you would expect import demand would start matching domestic demand again. I think that's sort of where we are at," Steel added.
Fonterra said Latin American import volumes rose 10 percent in the 12 months to December while Asia import volumes - excluding China - were up 8 percent.
Milk production on the other hand has dropped as farmers respond to low prices, Fonterra said. The company's New Zealand milk output fell 3.3 percent in the 10 months to March, while its Australia production dropped 1.4 percent.
Production for the rest of the New Zealand season ending May 31 "will continue to be influenced by changes in farming systems, such as decreased stocking rates and supplementary feeding, as farmers respond to the low milk price environment", Fonterra said.
The rate of milk production growth in the European Union has stabilized, while easing in the other major exporting countries, Fonterra added.
Earlier this year, Fonterra lowered its forecast dairy payout to farmer shareholders, citing sluggish world demand. According to the U.S. Department of Agriculture, global milk supply is estimated to outstrip domestic consumption by 2 million tonnes this year.
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