U.S. Dairy Export Council: Tight supplies and firm prices in the months ahead should enable U.S. dairy exporters to boost market share.
Source: U.S. Dairy Export Council
The global dairy markets have corrected from the New Zealand-drought induced rally of a couple months ago, and the mid-point of 2013 has arrived with prices relatively steady and well supported.
That’s the assessment of U.S. Dairy Export Council (USDEC) analysts writing in the June 11 issue of the organization’s "Global Dairy Market Outlook" newsletter. The report was written by USDEC’s Alan Levitt, Marc Beck and Brad Gehrke.
Export prices out of Oceania have pulled back 10-20% since April. European prices have been stable and U.S. prices mixed. The market is expected to remain firm in the third quarter due to ongoing supply constraints in major exporting countries.
Production shortfalls are still hanging over the market. Milk production among the five major suppliers (EU-27, U.S., New Zealand, Australia and Argentina) was down approximately 3.2% in March and April, a decline of nearly 1.5 million tons of milk.
"There’s still not much product available from South America, and the European and U.S. spring flushes have come and gone," the trio writes. "We expect modest improvement in the second half of the year, but project overall milk production from these five suppliers to be about flat for calendar 2013."
Recent rains came too late to salvage New Zealand’s current season -- production there was down about 25% in March and April. Because of heavy culling and strong comparables, USDEC says it will be tough for New Zealand to turn back to positive anytime soon. As a result, USDEC analysts project Kiwi milk production will be down 5-7% for calendar year 2013, a reduction of 1.4 million tons, equivalent to about 160,000-200,000 tons less product available this year to overseas buyers.
"Furthermore, we expect the cupboard is mostly bare: New Zealand exports were up about 14% year-over-year in the August-to-April period, even though milk production in the same nine months was flat, suggesting significant inventory drawdown ahead of the new season," the USDEC article notes.
Exporters are making strategic decisions in the face of lower output. New Zealand is focusing its dwindling milk flow on whole milk powder at the expense of cheese and butter. On the other hand, the Europeans are focusing on cheese and butter (for internal needs and for Russia), and producing less milk powder.
Meanwhile, buying activity remains good, though higher commodity prices have given some buyers pause. In addition, substitution has become more feasible, as the premium of dairy protein/fat vs. vegetable protein/fat has risen over the last six to nine months.
Still, in the first four months of the year, imports from China (+17%), Russia (+25%) and Algeria (+16%) all were strong. Russia milk production is lagging year-ago levels – an indication that imports will continue. Mexico production is flat, even as consumption continues to grow, so they’ll need to buy too. On the other hand, Japan milk production is down this year, but consumption is lower, making more milk available for manufacturing.