The U.S. Dairy Exporter Blog: Market Analysis, Research & News

  • Growing European Milk Production Weighing on Markets

    By Alan Levitt December 22, 2015

    Output is up 3 percent since quotas came off in April, adding to the global surplus.

    Europe’s milk production continues to soar. In October, milk deliveries were 12.4 million tons, up a whopping 4.7 percent (+551,000 tons) from a year ago, according to Eurostat data. Of the increase, most came from Ireland (+117,000 tons, +27 percent); the Netherlands (+116,000 tons, +11 percent); and Germany (+84,000 tons, +3 percent). Deliveries in the Netherlands were up another 135,000 tons, +14 percent, in November.

    As noted in the recent U.S. Dairy Export Council “Global Market Outlook” webinar, Ireland and the Netherlands combined produce nearly as much milk as New Zealand. Therefore, double-digit production increases from the two northern European countries creates a significant volume of exportable surplus.

    ireland_netherlands_milk_production-679559-edited

    EU-28 output was lower in the first quarter of 2015 as farmers tapped the brakes to avoid over-quota penalties. Since then, however, supply has grown sharply: In the April-October period, milk deliveries were up 2.9 percent from last year, and up 8.4 percent from two years ago.

    Even in the face of weaker global market conditions, major European processors have continued to pay farmers more than 30 euros/100 kg all year—a sufficient level for many in a period when feed and fuel prices are at six-year lows. In fact, farmgate milk prices have increased slightly since late summer, ensuring newly built processing plants stay full.

    EU-185118-edited

    With more milk than needed, most of the excess has gone into skim milk powder (SMP) and butterfat. In the April-September period, EU SMP production was up 7.3 percent and butterfat production was up 3.9 percent compared with the prior year.

    A portion of this growing production has moved into inventory, including government programs.

    Sales to public intervention have resumed over the last month—about 1,710 tons of SMP per week—bringing intervention stocks to 30,353 tons on Dec. 13. At today’s exchange rate, the intervention price is $1847/ton, close to where SMP is trading commercially. Meanwhile, about 3,000 to 4,000 tons of SMP are coming out of Private Storage Aid (PSA) stocks each month, but twice that much is going in so private inventories continue to grow. At the end of October, PSA stocks for SMP were almost 28,000 tons. On top of that, more than 74,000 tons of butter sat in PSA warehouses as well.

    Though Ireland’s contribution to the excess will slow in the next few months as the nation moves into its off season, EU production is forecast to continue to expand in 2016. Most projections call for increases of 0.8 percent to 1.2 percent over 2015 levels. Growth is expected to remain especially strong in Ireland. Teagasc, Ireland’s national agri-food development agency, projects Irish milk production will expand another 7 percent in 2016.

    With excess milk working its way into the global markets, European surplus will weigh on world commodity prices in the year ahead. This will keep competitive pressure on U.S. exporters in 2016.

    USDEC expects more of the same for the global dairy markets in 2016, with prices hovering in a lower gear than in the previous five years.

    Click on the arrow below to listen to additional commentary from Dairyline radio.

     

    Note: The archived version of the USDEC Global Market Outlook is now available for viewing online. All registered attendees can access the recording here.

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    The U.S. Dairy Export Council fosters collaborative industry partnerships with processors, trading companies and others to enhance global demand for U.S. dairy products and ingredients. USDEC is primarily supported by Dairy Management Inc. through the dairy farmer checkoff. How to republish this post. 

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