US report allays China milk glut fears

Fears of a five-year global milk glut have been allayed by a report that Chinese dairy import demand will continue at strong levels.

The Goldman Sachs multinational investment banking firm recently estimated that global output of raw milk will outstrip production by 1.8 million tonnes, or 2 billion litres, per year for the next five years.

Demand growth of only 2% was predicted, compared to raw milk production growth of 2.6% per year.

However, the US Department of Agriculture has raised by more than 50% its forecast for China’s purchases of whole milk powder. This counters speculation that China’s volume of dairy imports was set to decline in 2014.

According to the USDA, the pace of China’s imports of milk powder during the early months of 2014 continued at a “breathtaking pace”.

Prices hitting a 21-month low in the GlobalDairyTrade auction last week was attributed to weaker demand by China, the world’s top dairy importer. Instead, rising global production is behind the collapse, according to the USDA. Already in Ireland, the Irish Dairy Board purchase price index has slid from 133.5 in February, to 121.5 for June.

Dairy farmers in Ireland and around the world now must hope that Chinese demand, China’s faltering national milk production, and Chinese consumers’ preference for imported dairy products, will support dairy markets.

As it stands, China’s whole milk powder imports have more than trebled in three years, to 1m tonnes per year.

Meanwhile, most supply side factors point to strong global dairy production, led by New Zealand, the world’s top exporter, where milk production is at an all-time high, with high prices driving farmers to produce yet more.

Extra cows on farms newly converted to dairying are expected to bring New Zealand’s dairy cow herd to a record 5.1 million next year.

Milk output for 2014-2015 is estimated to increase by 2% in Australia, the fourth biggest exporter.

EU milk production is running about 7% ahead of last year — even before the brakes come off when quotas are scrapped next April, predicted to boost 2015 production by an extra 2.5%.

US production has increased about 1.4% this year, held back by poor pasture growth in many major producing states.

However, prospects of weaker markets have sent futures prices for Class III milk, used to make cheese, from a record $24.32 in April to $18.57 for January delivery.


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