Main dairy trade index jumps by 11.4%
Yesterday’s 11.4% rise in the Global Dairy Trade Index supported Rabobank’s prediction that the global dairy market rally will continue well into next year, driven by tightening world supply.
At GDT’s leading global auction for trading large volume dairy ingredients, this was the largest increase since the middle of August, taking the index to its highest level for over two years.
Prices increased as much as 19.8% (for whole milk powder).
Prices went up 6.5% for Skim Milk Powder, a more important commodity for the EU.
Meanwhile, tightening world supply is due mainly to milk production in the EU, the world’s top producer, falling at its quickest rate in three years.
The EU milk supply for January to August has fallen 2% behind the 2015 level.
It will fall further in the October to New Year period, after 58,000 dairy farmers from 27 EU countries (all except Greece) signed up to receive EU compensation in return for cutting their output by more than 1.07m tonnes of milk.
Milk markets are also benefiting from a further decline in New Zealand production levels in the first half of October, following the 2% decline in September, with an annual decline of around 14% in the important Waikato dairy region. This is due to unfavourable early milk season weather.
Wet weather over the past few months has also hit production in Australia, where national milk production was down 10% in September, 9% in August, and 10% in July.
It’s only in the US that milk production remains buoyant, about 1.7% ahead of 2015 year-to-date, with American dairy farmers getting €38.05 per 100kg in August, compared to the EU average of €26.19, and Fonterra’s €28.46 in New Zealand.
September output in the US was up 2.3%, and the national herd grew by 21,000 cows in the June to September 16 quarter, when compared to last year.
An expected 2016-17 global grain glut, including record US maize production,will keep milk production costs low in the US.
Elsewhere, low milk prices in China, and import competition, have left the national herd shrinking. Over the last year, China’s dairy herd has fallen by 12%.
In South America too, supplies have collapsed. Compared to last year, 2016 output is running 11.3% down in Argentina, and 6.37% down in Brazil.
The Russian dairy herd has hit an all time low, according to the US Department of Agriculture.
Russian milk production is forecast to fall 0.5%, to an all-time low of 30.195m tonnes in 2017. Increased use of vegetable oil substitutes by processors is disincentivising investments in Russian dairy output. EU liquid milk sales have increased to Russian surrogate Belarus, the main milk seller into the Russian market.
Sanctions against EU dairy imports remain in place.
Within the EU, milk production continues to increase only in the Netherlands, with farmers preparing for new phosphates limitations to production, expected next year.
In September, Irish milk supplies started to fall back below year-earlier levels (by 3.5%), joining the downward trend in France, Germany, the UK (now running at about 8.2% behind 2015), and Poland.
