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In global dairy production scale, there was a sharp downturn of about 25% in New Zealand’s milk production during its late summer season drought in the early months of 2013 was coupled with a minimum of a six percent drop in China’s milk production during the first half of 2013, the equivalent of 10,000 tons of whole milk powder per month, and smaller percentage cutbacks in both the Europe Union and South America. This set the stage for a higher volume export market and the higher prices, in large part because China is the world’s largest milk powder importer and had been depending on New Zealand for a major portion of its supplies. For the latest reporting period, China increased its imports of whole milk powder by 35%, skim milk powder by 24%, and dry whey by 22%.
For whole milk powder, it is expected to be a minimum structural gap of 84,000 metric tons in total by mid-2016 with a possible doubling or quadrupling of that number if New Zealand is short on supply and China has a greater demand. For skim milk powder, and also mentioned of a likely deficit of 20,000 metric tons, and possibly up to 150,000 or even 270,000 metric tons by early 2016, depending on the demands by Mexico and China. In addition, Russia’s dip of four percent in milk production through September led to a 16 percent jump in dairy imports, most of which were cheese and butter is also observed and noted. Serving to offset those increases, in part due to sensitivity to high prices, were dairy product import reductions this year of 20% by Egypt, 11% by Algeria, and a smaller percentage by Venezuela.
Despite a rather favorable global market situation over 2011 and the first 9 months of 2012 expectations for the short term very much depend on the extent of increased milk production both in the EU and in the main supplying countries and the sustainability of strong demand on the world market. Factors contributing to the price recovery of the second part of 2012 have been linked to adverse weather conditions in the US and strong import demand on the world market led by China and other countries in South–East Asia as well as by the Near and Middle East. With its 1-2% milk production increase for 2013, the United States was able to build its share of the world’s dairy export market to 20%, up by four percentage points, during the first nine months of the year while also sharing in the overall price increase that boosted the value of the exports by 29%.
High European milk prices stimulated an increase in 2013 milk production
High milk prices, induced by strong global demand, have triggered a significant rebound in milk production in the second half of 2013, more than offsetting the decrease of the first months of the year. The number of EU dairy cows increased significantly in 2013, thus leading to expectations that milk collection should increase in both 2014 and 2015. Although no significant surge in milk production is expected after the quota system is abolished, higher milk availability should allow grasping export opportunities in world markets, in particular for milk powders and cheese.
Recent developments in Dairy Industry’s Growth Structure
With much more favorable weather, New Zealand’s milk production is up by 5.5% for the early months of its new major production season, Argentina is also having a boost in production, and the European Union is adding cows, helping to boost its milk output by a minimum of two percent with Ireland likely to exceed its quota, and the US had a good supply of non-fat dry milk and skim milk powder and also had 16%, up by 1.5% point, of the world’s cheese export market during that time, is also pointed out. Belarus enjoyed a 29% increase in dairy product exports, mainly to neighboring Russia, and it is also noted that India, which is the world’s top milk-producing country and had formerly banned exports, became a dairy product exporter for the first time, something any expert doesn’t expect to continue to happen regularly.
Although Australia’s milk production for the new year is down by 2% because of a series of droughts, overall world milk production is on a monthly increase of 400,000 to 500,000 metric tons compared to a year earlier. Also one can expect the US to be a contributor to that increase in volume because of much improved operating margins in recent months. The recent analyses by University of Wisconsin-Madison dairy economists that indicate dairy farmers in the US are enjoying their best operating margins since late 2007. This is due mainly to having corn prices drop toward $4 per bushel compared to an average of above $6 for the past three years.