Chinese demand could signal green shoots for dairy prices

25.07.2016

The global dairy markets may be beginning to improve, the US Department of Agriculture said, as it increased its forecast for Chinese demand.

"Global export prices of skimmed milk powder and whole milk powder have been rising recently suggesting that global milk powder markets may be in the early stages of a recovery," the USDA said.

"It is apparent that low milk prices and corresponding low margins are taking a toll on dairy farmers worldwide."

But officials warned that heavy skimmed milk stocks in the USA and Europe were still weighing on the market, with no substantial price recovery likely to come till well into next year.

Market comes into balance

"These recent increases in milk powder prices may be the first sign of a realignment of markets that are slowly coming into balance as the milk over-supply situation is corrected," the USDA said.

But the USDA warned of heavy stocks of skimmed milk powder, which will "likely temper any significant recovery in prices".

"While prices may trend upwards for the balance of the year, this progress will probably be unsteady and will likely be hampered by the substantial stocks of skimmed milk powder.

"Any significant recovery appears unlikely until well into 2017," the USDA said.

Chinese buying picks up

Chinese demand is key to world milk prices, with the dairy sector still in the doldrums after a sharp drop in Chinese imports back in 2013.

"The whole milk powder market in China appears to be staging a modest comeback as imports are up 20% through May year-over-year," said the USDA.

The USDA lifted its forecast for 2016 Chinese whole milk powder imports by 15,000 tonnes, to 375,000 tonnes, with the bulk of imports coming from New Zealand.

This is an increase of 28,000 tonnes from 2015 levels.

And Chinese liquid milk imports are seen sharply up as well, at 650,000 tonnes, most of which coming from the EU>.

"Imports of milk are booming and landed shipments through May are up nearly 87% to 260,000 tons in comparison to last year," said the USDA.

Slowing EU production

In the EU, the USDA expects milk production to "slow significantly" due to falling farm-gate milk prices.

Dairy product prices in Europe are booming, even as milk prices continue to fall.

The European Commission reports EU milk prices in May were down 4.0% month on month, but butter prices were up 4.6% in June, with cheddar prides up 2.4%.

New Zealand output ideas raised

But the USDA forecast production of liquid milk in New Zealand, the world's top exporter, at 21.1m tonnes in 2016, up 400,000 tonnes from the previous forecast.

The USDA cited "favourable weather conditions over most producing areas".

"Nevertheless, year-over-year milk production is expected to drop by 2%," the USDA said, citing low farm gate milk prices, which are


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