A Closer Look at European Production
Dec 30, 2013
The EU-28 dairy market continues to be a major influence on the global dairy supply.
By Will Babler and Luke Strub, Atten Babler Commodities LLC
While many think of the U.S. and New Zealand markets as those most influencing the world dairy supply, the EU-28 dairy market continues to be a major factor.
The EU-28 market consisted of approximately 30% of the world’s cow milk production in 2012 which was over 1.5 times the U.S. production and over 6.5 times the New Zealand production.
The share of total milk production within the EU-28 tends to be higher in northern Europe and lower in Mediterranean countries, with the agricultural importance of the dairy sector varying considerably between Member States. Major players in the EU-28 dairy market include Germany, France, the United Kingdom, and the Netherlands. The aforementioned Member States combined to produce over half of the EU-28 milk in ‘12-’13 (the EU-28 dairy season runs from the beginning of April to the end of March with peak production generally occurring in May).
During the ‘12-’13 market year EU-28 production decreased by 0.6% YOY due to high feed prices, wet and cold weather in winter, and an early spring. Year over year decreases in production continued in the early months of the ‘13-’14 dairy season, however production has shown recent increases. Milk deliveries have increased by 2.8% YOY from July ’13 – September ’13 with September ’13 production ending up 3.8% YOY. Overall, ’13-’14 EU-28 production is up 0.7% YOY.
According to USDA FAS, 2014 EU-28 milk output is expected to continue to increase in response to lower projected feed costs and stronger demand for milk products internationally. Increasing recent EU-28 production, coupled with increasing U.S. and New Zealand production, makes for tenuous conditions for dairy producers worldwide. Increases in production have been mitigated by recent insatiable Chinese demand for dairy products, however effects may be felt if the Chinese demand does not persist.
Discussions of the EU-28 dairy market will heat up in the New Year as the expiration of the EU-28 milk quotas approach in 2015. Keeping in mind the overall global dairy supply picture, and how major players such as the EU-28 may affect it in the future, will be of crucial importance in making sound risk management decisions going forward.
Risk in purchasing options is the option premium paid plus commissions and fees. Selling futures and/or options leaves you vulnerable to unlimited risk. Transaction cost used throughout this report includes both commissions and fees. Atten Babler Commodities LLC uses sources that they believe to be reliable, but they cannot warrant the accuracy of any of the data included in this report. Past performance is not indicative of future results. Unless otherwise stated the information contained herein is meant for educational purposes only and is not a solicitation to buy futures or options. The author of this piece currently hedges for their own account and has financial interest in the following derivative products mentioned within: milk.