The Prince's Farm Resilience Programme 2017-18 is open to family farms whose main enterprise is livestock or dairy. https://t.co/PaPxQeSuRs
Looking back at how these three aspects of global dairy markets developed in 2015 will show where the markets are now and provide an insight into what can be expected in the next few months.
Milk production in the main producing regions (EU, New Zealand, Australia, US and Argentina) has grown by around 2% annually over the past five years, which is around 5 billion litres more milk per year. Up until the early part of 2014, the demand for dairy products in countries such as Chin and Russia was able to absorb most of the increased output, supporting prices.
The disappearance of the Russian market in the summer of 2014, combined with the stock build-up in China reducing its import needs, meant demand was suddenly too low for the rate of growth in milk production. Imports by China and Russia in the 10 months to October 2015 fell by around 50% compared to the same period in 2014. This represents just under 400,000 tonnes of product, or the equivalent of more than 3.5 billion litres of milk.
This imbalance in the market saw average global prices for dairy products, based on Fonterra auction results, drop by 6% through 2015. Milk supplies, however, continued to increase, fuelled primarily by growth in the EU resulting from the removal of quotas in April 2015.
With a large chunk of import demand taken away by China and Russia, the excess milk has ended up as accumulated stocks. EU stocks of skim milk powder (SMP) and cheese are reported to be at their highest levels in at least five years while US commercial stocks of milk powders hit a record high in the summer of 2015. According to the US Dairy Export Council, there were approximately 400,000 tonnes of milk powder in inventories as of December 2015. This amount of stock represents just under 20% of annual imports of milk powders.
The net impact of developments in production, stock accumulation and import demand is that, while some areas are starting to show a slowdown in production, the market continues to be burdened with too much milk. Forecasts for 2016 suggest growth in US and EU milk production although it is expected that the EU will grow at a slower rate, while NZ is expected to produce anywhere from 3%-6% less milk depending on the impact of the El Niño on grazing conditions. How much extra the EU produces in 2016 will be largely dependent on the spring peak and quality of grazing, with most of the retraction in milk supplies not expected to occur until the second half of the year.
While demand for dairy products is expected to continue to grow at a global level, predominately in developing countries, the stock levels will need to return to more normal levels before we see a sustainable recovery in prices.