The burden to reduce milk production will fall on U.S. and European producers now that production the Southern Hemisphere is winding down.
World milk production is starting to drop but with Chinese demand much softer than it was a year ago, larger cutbacks in output will be need to balance global dairy markets.
“At the start of 2015, dairy farmers around the world started getting the signal to slow milk production, and many of them put the brakes on output,” says Sara Dorland, analyst with the Daily Dairy Report and managing partner at Ceres Dairy Risk Management, Seattle. “Combined milk production in January in Australia, Argentina, New Zealand, the United States, Brazil and the EU-28 countries that have reported output was nearly unchanged compared to last year, with a slight decline of 0.07 percent.”
January milk output in the EU-28 reporting countries fell 0.7 percent, or 11.6 million metric tons (25.5 billion pounds) below the previous-year. Austria and Greece have not yet reported January output.
Production in Europe’s top two milk-producing countries, Germany and France, fell below last year’s pace, dropping 1.5 percent and 1.7 percent, respectively. But of all the European countries that reported, Ireland saw the steepest decline in January milk production, with a nearly 15 percent plunge compared with the prior-year.
“Irish producers continue to try to mitigate the impact from over-quota levies,” says Dorland. Beginning in April, however, Europen quotas along with over-quota levies will be eliminated.
Milk production in New Zealand also continues to contract due to drought conditions. Fonterra’s total February milk collections were 6.8 percent lower than the prior year.
U.S. milk production remains robust, but year-over-year gains narrowed in February, according to USDA’s latest Milk Production report. February output climbed 1.7 percent above the previous year and was 1.4 percent stronger than January output on an average daily basis. While output in California continues to decline, gains in the Midwest are offsetting losses in the Golden State.
A key difference between this year and last is that milk production in early 2014 was ramping up to meet unfettered demand from China. Last year, unlike this year, China was not only buying to meet current needs it was also stockpiling large volumes of milk powders, says Dorland.
“China’s January 2015 milk powder imports are showing signs of improvement, but they are still well behind last year’s pace,” notes Dorland. “Several other countries increased milk powder imports in January, which offset lower activity from China. But, once again, the same question surfaces: Was the recent buying out of need or for stockpiling?”
World milk production will need to contract further to rebalance global supply and demand. “Poor weather conditions have stalled Southern Hemisphere milk production, which likely will bring a swift end to the milk-production seasons in Australia, New Zealand, Argentina, and Brazil. However, Europe and the United States are both gearing up to reach peak milk production over the next few months, which will put the burden of any future reduction in the milk supply on U.S. and European dairy producers,” says Dorland.
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