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Where Are Dairy Markets Heading?

02 December 2014

Strong prices earlier this year could keep prices down next as production stays high, according to one US dairy markets expert.

World milk production continues well above a year ago for major exporters of dairy products, in particular New Zealand, Australia and the EU-28 countries, writes Professor Robert Cropp, University of Wisconsin. 

He writes that China has backed off from its very aggressive buying of dairy products on the world market earlier in the year (China was the second largest customer for the U.S.) as they have accumulated stocks of dairy products.

Russia added to market tension after China, imposing trade sanctions in August

The Russia/Ukraine issue where Russia has banned imports from the EU-28 has disrupted EU exports.

The result of these factors has been a drop in world dairy product prices by about 50 per cent from earlier in the year putting prices well below U.S. dairy product prices. U.S. dairy exports were setting new record highs the in the first half of the year and are now experiencing declines.

The latest export data for September showed the following exports compared to a year ago: butter down 79 per cent, cheese still 9 per cent higher but new orders declining, nonfat dry milk down 29 per cent, dry whey exports down 13 per cent, whey protein concentrate down 19 per cent, with lactose up 7 per cent.

What Will 2015 Bring?

As we look into 2015 milk prices will show further weakness, but opinions of the extent of weakness vary considerably.

The record milk prices experienced in 2014 will encourage more milk production going into 2015.

USDA’s is projecting milk production will increase 3 per cent in 2015 as cows are added and with lower feed costs dairy producers feed for more milk per cow.

But, dairy producers appear to be expanding cow numbers rather slowly as replacement numbers are rather tight and of high value, and cow slaughter prices remain high.

Dairy producers recognizing milk prices will be lower may be more cautious as well in expanding.

So the 3 per cent increase in milk production could be a little on the high side. There is a much uncertainty as to the level of dairy exports for 2015. Milk prices are at a 5 year low in New Zealand and have declined in the EU-18 countries.

This may slow the increase in milk production in these major exporters. China could come back stronger in world product purchases by the second half of the year.

World dairy product prices could be at their low point and will likely show some strength as we move through the year. But, it appears that U.S. dairy exports will be lower in 2015 than 2014.

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