Dairy Production and Trade Development
|This update to the 'Dairy: World
Markets and Trade' circular is based on reports from 12
leading producers and traders of dairy products and
available secondary information. No changes were made in
the data for countries not reviewed. That data is
presented for consistency and context only.
Cow milk production in selected countries for 1998 is estimated at 384.3 million tons, up marginally from the January forecast, and 1 percent above 1997. Compared to January, the United States and Canada account for most of the change. The estimate of milk cow numbers for 1998 has been revised to 132.2 million head, slightly lower than in 1997.
Butter production in selected countries for 1998 is estimated at 5.2 million tons, up from both the January forecast and 1997. Prospects for butter trade have risen since the January report mainly due to higher shipments from New Zealand. Total 1998 butter exports are still expected to decline from 1997 due in part at least, to the Asian economic crisis. Historical Asian imports can be seen in the "Supplemental Imports" section.
Cheese production is expected to exceed 12 million tons in 1998, above the January forecast, and 2 percent higher than revised 1997. Compared to January, the United States, France and Australia account for most of the increase in total production. Export prospects for cheese are also up compared to the January forecast but are marginally below the revised estimate for 1997. Compared to 1997, estimated 1998 cheese exports from the EU are off 35,000 tons and that decline is largely offset by small increases from other exporters.
Nonfat dry milk production in 1998 is estimated at 3.1 million tons, essentially unchanged from 1997 and the January forecast. Compared to the January forecast, the export potential for NDM is up about 3 percent as prices moved lower and surpluses developed, particularly in the EU and the United States.
United States: Milk production in the United States for 1998 is estimated at 71.7 million tons, up less that one percent from the revised 1997 estimate of 71.0 million tons. Cow numbers continue to fall, but a boost in per cow production will allow an overall production increase. Excessive rainfall early in the year hampered milk output in California and hot-dry weather in the southern states has caused some loss of yield potential, particularly in the April-July period. As of mid-1998, milk prices are up with the June Basic Formula Price (BFP) 22 percent above June 1997.
For the remainder of 1998, higher milk prices and reduced prices for concentrate feeds should yield favorable milk-feed price relationships providing additional incentives for expanding production. However, uncertainty about supplies of dairy-quality forage plus the need to project prices in a volatile environment may make many producers cautious regarding expansion.
U.S. butter production was down rather sharply during the first half of 1998 while demand for butterfat remained strong. As a result, butter prices rose sharply and set a new record during the second and third quarters of 1998. For the year, butter production is forecast at 505,000 tons, 3 percent below 1997. Butter and anhydrous milkfat exports are reported at 6,200 tons for the first 5 months of 1998 with most of those exports due to contracts made in 1997 when prices were lower. Little additional butter is likely to be exported until prices ease significantly.
U.S. cheese production in 1998 is now estimated at 3.5 million tons, up 3 percent from 1997. This compares with 2 percent growth in 1997. Cheese exports are expected to show modest growth as effective market development efforts offset the higher U.S. prices.
Production of nonfat dry milk (NDM) during 1998 is estimated at 530,000 tons, 2 percent above the January estimate, but still down from 1997. NDM prices in the United States have been right at support during much of the spring and summer months. In response to low domestic prices, the Dairy Export Incentive Program (DEIP) has been very active since the start of the new program year on July 1. The Program is expected to continue to be active which should boost NDM exports to 105,000, above the January estimate but still down from 1997.
Additional information on U.S. and Canadian policy developments is presented in the 'Policy and Program Developments Highlights' section.
Canada: Milk production in 1998 is estimated at 8.2 million tons, 1 percent above the revised estimate for 1997. With more milk production, exports of the major dairy products are generally expected to increase.
Based on preliminary data, the 1997/98 dairy year (Aug/July) is expected to show a 1 to 2 percent increase in total Canadian milk production despite a 3-percent cut in the quota for manufacturing milk (MSQ) for the year. A relatively mild winter in Quebec and Ontario, the two leading milk production provinces helped maintain the robust production pace that characterized the fall months. Much of the additional milk, compared to 1997, is expected to be made into cheese and whole milk powder and be exported. Even though milk output was running ahead of the 1996/97 pace (rather than being cut back as called for by the MSQ reduction) on February 1, the official target price for manufacturing milk was boosted 2 percent.
For the 1997/98 dairy year, most analysts expect that production of manufacturing milk will exceed the MSQ by 10 percent compared to a 6 percent excess in 1996/97. At this point, there has been no official word on whether or not the MSQ will be changed for 1998/99.
Current calender year forecasts call for 1998 cheese and butter production and exports to increase marginally compared to 1997. Success in exporting selected non-traditional dairy products has taken some of the pressure off NDM, traditionally the major product used to dispose of surplus milk production. As a result, production and exports of NDM are expected to be stable in 1998 and that a level that is below recent years.
In addition to traditional products, Canadian exporters have also done well with some other products. With the reopening of trade, Canadian exports of beverage milk to the United States increased from 102 tons in 1995 to 3,658 tons in 1996 and 5,762 in 1997. Nearly all milk exports to the United States are ultra high temperature (UHT) milk moving from the province of Quebec to Puerto Rico
Canadian exports of condensed and evaporated milk have also shown significant increases. In 1995, 4,000 tons valued at $C 3.2 million were exported. In 1996, those totals moved to 25,000 tons and $C 41.0 million respectively, while 1997 trade was reported at 39,000 tons and $C 58.8 million. Major 1997 destinations included Libya and Haiti.
Mexico: Milk output in 1998 is forecast to increase slightly to 8.0 million tons compared to 7.9 million in 1997. The 1997 estimate has been revised upward since the January release. Some large dairies, particularly in the states of Coahuila and Durango, are adding to their herds but many of the smaller commercial dairies are culling their herds. In most areas of the country, expansion of dairy production is limited by both water and forage supplies.
Mexico's 1998 output of NDM is expected to remain stable or perhaps increase slightly, as limited milk supplies are utilized in the more profitable products. Imports of dairy products are expected to continue growing in 1998 as the general economy grows and that country remains well below self sufficiency in dairy products. Imports of powdered milk, particularly nonfat dry milk, are forecast at 125,000 tons, down slightly from 1997. Successful bids by U.S. suppliers in response to a recent Mexican tender for NDM should help the United States increase its market share for the year as a whole.
Mexican consumption of dairy products continued to show further recovery in 1997 following 1995's sharp decline due to devaluation of the peso. Cheese consumption in 1998 is forecast to increase again with the improving economy. Though imports of high quality cheese continue to be small, U.S. cheeses are continue to gain market share.
In addition to traditional dairy products, Mexico is also a major U.S. market for other dairy products. With the recovery in the Mexican economy, fluid milk imports from the United States have also shown signs of rebounding. U.S. fluid milk exports to Mexico dropped from the pre-devaluation level of over 61 million liters, to only 17 million in 1995. Trade increased to 25 million liters in 1996 and 36 million in 1997. Early in 1998 fresh milk trade was down, probably due to the efforts of some Mexican states which banned sales of imported milk. Another contributing factor may have been the removal of price controls on fresh milk which likely made it more competitive relative to other uses of domestic milk. The problem of
State restrictions on imports of fresh milk has been fully resolved and fresh milk trade is moving normally again.
Additional information on Mexican policy developments is presented in the 'Policy and Program Developments Highlights' section.
Europe, Asia, Africa
European Union (EU): Based on new reports from 6 countries, EU milk production in 1998 is now forecast at 121 million tons, up slightly from the January forecast. Producers' efforts to limit production during the first quarter, in an attempt to remain within the quota, seemed to be less effective this year. Most of the reviewed countries were at or above EU quota for the 1997/98 (April/March) year and are subject to penalties for over-quota production. Cow numbers are expected to continue their long term downward trend as improving productivity allows the quota to be filled with fewer and fewer cows.
On the trade side, EU trade commitments made under the Uruguay Round were under threat in 1997/98 (July/June WTO year) especially for quantitative limits for cheese and 'other' dairy products, (mostly whole milk powder). Though final figures are not yet available, both categories appear to have ended the year with subsidized exports at or above the limits of 384,000 tons and 1,072,000 tons for cheese and other dairy products respectively.
To stay within the export limit for cheese, the EU Commission shifted the structure of subsidies and stopped issuing licenses for several periods during the July/June year.
As part of the farm price package for 1997/98, the EU decided to leave the dairy support system largely unchanged. These are intervention prices for butter and NDM which will stay at ECU 3,282 and 2,055 per ton, respectively. These prices are designed to support the EU's target price for milk. The EU-wide production quota also remains at the 1996/97 level.
EU butter production for 1998 is now estimated at 1.72 million tons, approximately 1 percent below 1996 and 1997. EU butter exports are expected to decline 3 to 5 percent in 1998 due to weaker international demand. Roughly half of EU butter exports were taken by Russia in 1997.
EU cheese production in 1998 is now estimated at 5.8 million tons, up slightly from the January forecast and the year 1997. In a reflection of the implementation of WTO restrictions on export subsidies to non-EU countries, EU cheese exports are forecast to fall to 449,000 tons, down 35,000 tons from 1997. WTO commitments call for annual reductions of just over 20,000 tons.
French cheese production in 1998 is forecast at 1.7 million tons, only slightly higher than the 1997 level. Rising French consumption is expected to take most of the increase. In the UK, production is expected to remain at the 1997 level, but domestic consumption is forecast to show another healthy increase. Some of the boost in cheese consumption is due to continued fears about the safety of eating beef.
Loss of markets for feta cheese is expected to cause a further fall in Danish cheese exports to non-EU markets. Iran and Egypt were Denmark's principal markets for feta cheese. The decline in exports to non-EU countries as a result of reduced subsidies is making it difficult for Denmark to find alternative markets for its cheese.
NDM production in the EU for 1998 is expected to decline slightly to 1.1 million tons. Low profitability of calf fattening throughout Europe has resulted in soft demand for NDM to be used in calf feed. In 1997, 500,000 tons of NDM was used for calf feed, down from 700,000 tons 1996. Further strengthening of the U.S. dollar relative to EU currencies has enabled EU traders to undercut U.S. prices at times, however intervention buying has been needed to support EU producer prices for NDM. EU exports of NDM in 1998 are forecast at 300,000 tons, 6 percent below 1997. Mexico and Algeria were the EU's major markets for NDM in 1997.
EU production of whole milk powder (WMP) is estimated to increase less than 1 percent in 1998, to 1.04 million tons. This follows growth of nearly 5 percent in 1997. EU production of WMP is growing as processors switch from drying NDM, which is viewed as having less favorable export prospects. EU exports of WMP are forecast at 547,000 tons in 1998, 2 percent above 1997. Relative to its WTO commitments, EU exports of WMP are part of the 'other dairy product' category which has bumped against it's limit in recent years. The WTO schedule calls for subsidized "other dairy products" to decline by 44,000 tons per year. Algeria and Saudi Arabia are usually the major markets for EU exports of WMP.
Additional information on European policy developments is presented in the 'Policy and Program Developments Highlights' section.
Algeria: With only a small dairy industry of its own, Algeria needs to import approximately three-fourths of its milk requirements. In addition to it's limited production, operation of it's price control system tends to aid fresh cheese and yogurt production rather than the beverage milk market. This leaves reconstituted dry milk as the major source of beverage for the populace. Based on availabilities and price relationships, Algeria imports either WMP or NDM plus butterfat for reconstitution and sale, typically in one liter packs. Algeria often needs credit or other financial aids to finance its purchases.
For 1998, imports NDM and WMP are forecast at 63,000 tons and 83,000 tons respectively. The forecast for NDM is down from 1997 while WMP is essentially stable. These forecasts assume that controlled prices for reconstituted milk will be moved significantly upward which will affect demand. In addition, private traders have been allowed to import cheese and some other dairy products and that appear to be having a negative impact on the demand for reconstituted milk.
Japan: Milk output in 1998 in Japan is forecast at 8.6 million tons, just below 1997. The February 1998 cattle inventory showed further contraction of the dairy herd. While milking cow numbers were only slightly reduced from February 1997, the number of replacement heifers dropped 4 percent. The reduction in milk cow numbers contrasts with the Japan Dairy Council's announced target for production growth of 0.7 percent which the Dairy Council says is needed to help offset growing imports.
On the consumption side, moderate growth is forecast for use of milk for processing, while beverage use declines. Also utilization statistics suggest Japanese consumers are drinking more processed milk at the expense of regular beverage milk. However, much of that trend is merely adding another stage of processing to make the product more desirable. Popularity of flavored milk and increasing sales of non-fat and low fat milk, calcium-enriched milk, and drinking yogurt (all considered to be processed milk) continued to grow in 1997 and that trend is expected to continue in 1998.
Japan's cheese imports are expected to continue a pattern of steady growth in 1998, rising to 176,000 tons, 3 percent above 1997. In recent years, the U.S. share of the Japanese cheese market has been increasing, though Australia, with 38 percent of the market, remains the major supplier. Total cheese consumption exceeded 200,000 tons in 1997, but per capita use is still very low when compared to countries with similar income levels.
With somewhat more milk available for processing, imports of NDM declined in 1997 and may sink again in 1998. Imports of NDM in 1998 are forecast at 65,000 tons, down from the 75,000 ton level of the last two years.
Japanese ice cream production in 1997 is reported to have declined 23 percent, leading to an increase in imports. Japanese trade data indicate that 30,000 tons of ice cream were imported in 1997 and that the United States held 44 percent of the market. U.S. premium blends are very popular with consumers in Japan.
Australia: Milk output in 1998 ( actually July-June 1997/1998) is estimated at 9.6 million tons, 3 percent above 1997. Cow numbers are estimated at 1.98 million head, up even more that the production increase. Favorable prices relative to other enterprises in recent years have given producers the incentive to expand their herds. The 1997/98 dairy year started with good seasonal conditions in major production regions, but turned to excessively dry in January and February. As a result of the dry weather, monthly production increases dropped sharply below those from early in the season. The expansion in milk cow numbers puts Australia in line for another increase in 1998/99.
The majority of the increase in 1998 milk production will again be directed to manufacturing. The production of all manufactured dairy products, except for whole milk powder, is estimated to increase during 1997/98. Except for non-fat dry milk, the export volume of major dairy products is expected to show an increase during 1997/98.
When final data are released, average manufacturing milk prices are expected to be down 4 percent compared to 1996/97. A 12-percent decline was registered last year. These declines are due to reduced returns on export markets. The continuing economic crisis affecting much of Asia may mean even more serious problems in 1998/99 since that region takes 70 percent of Australia's dairy exports.
New Zealand: New Zealand's fluid milk production in the 1997/98 season (June/May) increased just over 1 percent to 11.6 million tons, well below the near 10 percent average of the past 2 years. An El Nino caused drought was one of the reasons behind the slower growth. On a total milksolids basis, production moved from 882,000 tons in 1996/97 to 893,000 tons in 1997/98.
In recent years, much of New Zealand's production expansion had been driven by a steadily increasing national dairy herd brought about by conversions of many beef/sheep farms to dairying. In 1997/98 under many new cooperative regulations, the increased costs of processing additional milk must be paid in the form of higher fees by those bringing forth the extra production, no matter whether they are new entrants to dairying or just farmers expanding their production. These significant new costs plus expectations of a lower New Zealand Dairy Board (NZDB) payout took away much of the incentive to either expand an existing herd or to start a new dairy farm.
The 1997/98 final NZDB payout to farmers has been set at $NZ3.00 per kg milksolids, a decline of 6 percent compared to the previous season which in turn, was down 12 percent. The main factor behind the lower payout was lower international dairy prices. In contrast to the two previous years, the New Zealand dollar depreciated against major currencies but the NZDB was hedged against foreign exchange fluctuations with the result that dairy farmers saw little benefit from the depreciation.
The NZDB's payout will be "topped up" with an additional payment from individual dairy cooperatives. Top-up payments normally vary considerably across the dairy cooperatives which supply the dairy products to the Board for export.
For example, in 1995/96 Alpine Dairy, a small cooperative in the South Island, paid no additional top-up, while the industry's dominant cooperative, New Zealand Dairy Group, paid an additional $NZ0.50 per kg of milksolids.
For the 1997/98 season, the two cooperatives that now account for three-quarters of production are expected to add 'top-up' payments in the $NZ0.50 to $NZ0.70 per kg of milksolids range. For 1998/99, the NZDB is predicting a 5 to 10 percent boost in its payout but there likely will be an increase in variability between cooperatives due to the new payment system. (See policy section).
Based of the first three quarters of the year, dairy trade estimates for 1997/98 season, reveal large volumes being sold despite the slow growth in milk production. On the strength of further large butter sales to Russia, butter exports are estimated to be only 3 percent below last year's record.
Cheese exports for 1997/98 are estimated at 240,000 tons, just above the 1996/97 level. For the first three quarters of the year, Japan and the EU were leading markets while the United States, Australia, and Russia made up a second tier of important markets.
Exports of non-fat dry milk powder dropped to 200,000 tons in 1997/98, 7 percent below the year earlier level. For New Zealand, the economic difficulties in Asia hurt the market for this commodity more severely than markets for butter or cheese. Overall sales of whole milk powder are also expected to show a decline for the year, but only in the 2 to 3 percent range.
Additional information on policy developments in New Zealand is presented in the 'Policy and Program Developments Highlights' section.