Know Your Market
World Milk Production Responds to Record Prices, Improving Weather
Mar 10, 2014
A closer look at the output numbers in New Zealand, the European Union and the U.S.
By Will Babler and Luke Strub, Atten Babler Commodities LLC
Announced Class III and Class IV prices have increased throughout the second half of 2013 to at or near all-time record highs, providing producers with an incentive to increase output. Coupled with improving weather, record high prices and profitability have expectedly increased production across major milk-producing countries.
New Zealand Milk Production
New Zealand, the largest dairy exporter in the world, experienced a severe drought in early 2013, resulting in a 12.0% year-over-year (YOY) decrease in the first half of the 2013 calendar year. As favorable weather returned, New Zealand increased production by 5.5% in the second half of 2013. Monthly New Zealand milk production declines seasonally until lows are reached in the summer months. YOY production increases, however, are expected to continue, assuming favorable weather and strong margins continue.
EU-28 Milk Production
EU-28 milk production finished the 2013 calendar year up 1.0% YOY after a strong second half of the year. Production was down 1.4% in the first half of the year, due to high feed prices and wet and cold weather in major milk-producing countries. Production, however, increased 3.5% YOY in the second half of the year as weather conditions and margins improved. December 2013 EU-28 milk production continued the recent trend of production growth, increasing 4.4% YOY. For 2013-14 year to date (Apr 2013 – Dec 2013), EU-28 milk production is up 1.8% YOY, with additional increases in production expected as producers prepare for the expiration of the EU quota system in April 2015. Monthly EU-28 milk production will continue to increase seasonally until the summer months, after reaching a seasonal low in November.
U.S. Milk Production
U.S. milk production increased 0.5% YOY through the first third of the 2013-14 production year, trailing production increases in other major milk-producing countries. U.S. milk production has been hampered by cold and wet weather in the Midwest, which has reduced output. Excluding major Midwest milk producing states -- including Wisconsin, Minnesota, Iowa, Illinois, and Missouri -- U.S. milk production improved 1.3% YOY in December and January and 1.0% YOY through the first third of the 2013-14 production year. Additional output is expected as weather conditions improve in the Midwest.
Major Regions Combined Production
For the 2013 calendar year, combined milk production for New Zealand, EU-28, and the United States increased 0.7%. Production in the second half of the year was up 2.8% YOY, with production increasing 3.2% YOY from August – October, prior to adverse weather affecting U.S. production. As shown highlighted in the chart below, production for the most recent data point (December 2013) increased 2.8% YOY.
New Zealand and EU-28 have rebounded from poor weather conditions to significantly improve milk production as record high milk prices have been reached and strong margins continue. As weather in the Midwest improves, it is reasonable to expect the U.S. to follow suit and increase overall production.
Will Babler is a principal with Atten Babler Commodities LLC. The firm serves producers, processors and end users in the dairy industry by providing education, margin management programs and futures and options brokerage services. You can reach Atten Babler Commodities at 800-884-8290, firstname.lastname@example.org or www.attenbabler.com.
The information and comments contained herein are provided as general commentary of market conditions and are not and should not be interpreted as trading advice or recommendation. The information and comments contained herein are not and should not be interpreted to be predictive of any future market event or condition. Information contained herein is obtained from sources believed to be reliable, but cannot be guaranteed as to its accuracy or completeness.