Dairy Production and Trade Developments
|This update to the 'Dairy: World Markets and Trade' circular is based on reports from thirteen (13) 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 1999 is estimated at 386.5 million tons, down marginally from the January forecast, but 1 percent above 1998. Compared to January, Russia had the largest change, but much of that was offset by the increase in the United States. New Zealand and Australia also had significant percentage changes but they largely offset each other. The estimate of milk cow numbers for 1999 has been revised to 128.3 million head, one percent lower than in 1998, mainly as a result of a downward revision of the Russian estimate.
Butter production in selected countries for 1999 is estimated at 5.4 million tons, up from both the January forecast and 1998. Prospects for butter trade have declined since the January report mainly due to reduced shipments from the EU. Total 1999 butter exports are expected to remain near the 1998 level.
Cheese production is expected to reach 12.4 million tons in 1999, unchanged from the January forecast, and 2 percent higher than revised 1998. Compared to 1998, the United States accounts for most of the increase in total production. Export prospects for cheese are down compared to the January forecast but are unchanged from 1998.
Nonfat dry milk (NDM) production in 1999 is estimated at 3.2 million tons, marginally above the January forecast and 4 percent above 1998. Compared to the January forecast, the export potential for NDM is largely unchanged, although international prices have moved lower and surpluses have increased, particularly in the EU and the United States.
United States: Milk production in the United States for 1999 is estimated at 73.5 million tons, up 3.6 percent from the revised 1998 estimate of 70.9 million tons. Cow numbers continue to fall but at a reduced rate. A sharp boost in per cow production will allow an overall production increase. For the remainder of 1999, further rapid production expansion is expected as favorable milk-feed price relationships sustain the expansion pattern started in late 1998.
U.S. butter production is forecast to rebound to 515,000 tons in 1999, the first increase in 7 years. Most of the production increase is due to the surge in milk production, though it should be noted that despite the strong production growth, strong demand has kept butter prices well above the $1.00/lb level except of a very brief period in the first half of 1999. Butter exports are expected to be very limited unless prices fall significantly below current levels.
With increased production, imports of butter and other forms of butterfat are likely to remain within the 1999 quota levels. In 1998, imports of butter and butter oil were up sharply as U.S. prices, which peaked at $2.85/lb, allowed profitable importation even with the high over-quota duty. Combined 1998 imports of quota and over-quota butter and butteroil totaled 29,000 tons compared to a more normal level in the 5 ,000 to 7,000 ton range. New Zealand was the principal supplier of the over-quota butterfat.
U.S. cheese production in 1999 is now estimated at 3.6 million tons, nearly 5 percent above 1998. This compares with 2 percent growth last year. Cheese exports are expected to show a modest decline in 1999 as higher U.S. prices and low international prices offset market development efforts by the industry.
Production of nonfat dry milk during 1999 is estimated at 620,000 tons, 12 percent above the revised 1998 estimate and the largest U.S. production since the early 1970's. NDM prices in the United States have been near support during much of the spring and summer months. In response to the low domestic prices, the Dairy Export Incentive Program (DEIP) has been very active since the start of the year. The Program is expected to continue to be active and that should boost NDM exports to 170,000 metric tons in 1999.
Additional information on U.S. and Canadian policy developments is presented in the Policy and Program Developments Highlights section.
Canada: Milk production in 1999 is estimated at 8.3 million tons, 1 percent above the revised estimate for 1998. Although milk production is up, exports of the major dairy products may show little growth in 1999 as domestic demand for dairy products grows rapidly. Canadian analysts estimate that domestic butterfat requirements during the first half of the dairy year (Aug/July) were 3.5 percent ahead of the same period last year.
On February 1, 1999, the Canadian Dairy Commission initiated new support (target) prices for butter and NDM. The new support prices were set at $C5.47 per kilogram of butter and $C4.52 per kilogram of NDM. These new prices allowed the target prices for industrial milk to be boosted to $C57.03 /hectoliter ($US 17.25 cwt).
Based on preliminary data, the 1998/99 dairy year is expected to show a 1 to 2 percent increase in total Canadian milk production despite a 4-percent increase in the quota for manufacturing milk (MSQ). Even with the increase in the MSQ, preliminary indications are that the MSQ will be exceeded by 8 to 10 percent. As mentioned, much of the additional milk is expected to be made into cheese and other products and sold in the domestic market.
Current forecasts call for calendar 1999 cheese and butter production and exports to increase marginally compared to 1998. Success in exporting selected non-traditional dairy products, such as condensed milk, 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 1999.
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 4,290 tons in 1996 and 6,470 in 1998 Another increase is likely in 1999 as January-April exports were 50 percent above the same period of 1998. 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 1998 trade was reported at 45,000 tons and $C 70.0 million. Major 1998 destinations included Libya and Haiti.
Mexico: Milk output in 1999 is forecast to increase slightly to 8.5 million tons compared to 8.4 million in 1998. The 1998 estimate has been revised upward since the January release. Some large dairies are adding to their herds as more productive cows plus improved management facilitate profitable production despite tight margins. In most areas of the country, expansion of dairy production is limited by both water and forage supplies.
Mexicos 1999 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 NDM and other dairy products are expected to rebound in 1999 as the general economy grows and domestic production remains well below self sufficiency. Imports of NDM are forecast at 130,000 tons, above 1998 but still down slightly from 1997.
Mexican consumption of dairy products continued to show further recovery in 1998 following 1995's sharp decline due to devaluation of the peso. Cheese consumption in 1999 is forecast to remain at the 1998 level which was sharply above 1997. Though imports of high quality cheese continue to be small, U.S. cheese continues to gain market share.
Fluid milk is an exception to the general pattern of growth for most U.S. dairy products. As more of Mexicos domestic milk production has gone into the fluid market, U.S. fluid milk exports to Mexico dropped from 36 million liters in 1997 to 22 million in 1998. That compares with the pre-devaluation level of over 61 million liters. That level dropped to only 17 million liters in 1995, but rose again in 1996 and 1997. One factor contributing to greater use of domestic production is the removal of price controls on fresh milk. Price controls on the beverage milk sector tended to push more milk into cheese and other manufacturing uses.
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 1999 is now estimated at 119.9 million tons, down from 1998. Producers efforts to limit production during the first quarter, in an attempt to remain within the quota, seemed to be more effective this year. Of course, slow exports and falling farm milk prices provided some additional incentive to stay within quota this year. 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, which were under threat of being surpassed in 1997/98 (July/June WTO year) especially for quantitative limits for cheese and other dairy products (mostly whole milk powder), were under almost no pressure in 1998. Loss of the Russian market for cheese and butter, plus generally unfavorable international markets for NDM sharply reduced potential export levels for all three products.
EU butter production for 1999 is now estimated at 1.74 million tons, slightly above 1998 as processors switch from cheese into butter and NDM where minimum prices are supported. Within the EU, current butter prices are at or just above intervention.
EU cheese production in 1999 is now estimated at 5.8 million tons, the same as in 1998. EU cheese exports are forecast to fall to near 400,000 tons, a 4 percent reduction from the revised 1998 figure. WTO commitments call for annual reductions in subsidized cheese exports of just over 20,000 tons
French cheese production in 1999 is forecast at 1.65 million tons, essentially the same as in 1998 and 1997. Consumption of cheese in France is expected to show additional growth in 1999. In the UK, cheese production is expected to show some growth compared to 1998 level, but domestic consumption is unlikely to change following a healthy increase last year. Some of the boost in cheese consumption was due to fears about the safety of eating beef.
NDM production in the EU is expected to increase about 3 percent in 1999 as processors switch out of cheese and into butter and NDM which are supported by intervention. Low profitability of calf fattening throughout Europe has resulted in soft demand for NDM to be used in calf feed. In 1998, 470,000 tons of NDM was used for calf feed, down from 700,000 tons in 1996 and 500,000 tons in 1997. 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 1999 are forecast to be slightly below 1998, which in turn, were down sharply from 1997. Mexico, Algeria, and Cuba were the EUs major markets for NDM in 1998.
EU production of whole milk powder (WMP) is estimated to decline about 1 percent in 1999, to 1.12 million tons. This follows growth of nearly 10 percent in 1998. The longer term trend is for EU production of WMP to grow as processors switch from NDM, which is viewed as having less favorable export prospects. EU exports of WMP are forecast at 560,000 tons in 1999, essentially unchanged from 1998. Relative to its WTO commitments, EU exports of WMP are part of the other dairy product category which has bumped against its limit in recent years. The WTO schedule calls for subsidized other dairy products to decline by 44,000 tons per year. Algeria, Saudi Arabia, and Venezuela were the top markets for EU exports of WMP in 1998.
Additional information on European policy developments is presented in the Policy and Program Developments Highlights section.
Russia: The impact of the financial crisis is being strongly felt by the Russian dairy sector. Milk production which appeared to stabilize in early 1998 is likely to decline again in 1999 as producers face new pressure on their profit margins. The March 1, 1999, census showed a 7-percent decline in total cow numbers, which, since most cows are part of the milking herd, will have a negative impact on milk production in 1999 and later years. On the other hand, some Russian processing companies say the higher prices for imported dairy products (in ruble terms) has significantly boosted their ability to compete against imported products.
Current forecasts, based on the assumption that trade will pickup later this year, suggest imports of butter and cheese at the 1998 level while imports of both NDM and WMP rise. That estimate includes likely shipments under the food aid programs of the United States and the E.U. Per capita consumption levels will be significantly lower than shown if these trade flows do not materialize.
Japan: Milk output in 1999 in Japan is forecast at 8.5 million tons, just below 1998. The February 1999 cattle inventory showed further contraction of the dairy herd. While milking cow numbers were only slightly reduced from February 1998, the number of replacement heifers dropped another 4 percent. The reduction in milk cow numbers contrasts with the Japan Dairy Councils announced target for production growth of 0.7 percent which the Dairy Council says is needed to help offset growing imports.
Japans cheese imports are expected to show some further steady growth in 1999, rising to 185,000 tons, slightly above 1998. In recent years, the U.S. share of the Japanese cheese market has been increasing, though Australia, with approximately 40 percent of the market, remains the major supplier. Total cheese consumption is expected to be near 220,000 tons in 1999, but per capita use is still very low especially when compared to countries with similar income levels. With somewhat more milk available for processing, imports of NDM declined in 1998 and may stay at that level in 1999.
Australia: Milk output in 1999 (actually July-June 1998/1999) is estimated at 10.2 million tons, 5 percent above 1998. Cow numbers are estimated at 2.03 million head, up one percent. Favorable milk prices relative to other farm enterprises continue to give producers the incentive to expand their herds. The 1998/99 dairy year started with good seasonal conditions in major production regions, and that continued throughout most of the year.
The expansion in milk cow numbers puts Australia in line for another milk production increase in the 1999/2000 dairy year which just started.
The majority of the increase in milk production was used in the manufacturing sector. The production and export of all 4 major manufactured products increased during 1998-99. The largest increases were for whole milk powder (WMP), skim milk powder (SMP) and cheese.
Actual export statistics for the first three quarters of 1998/99 show that exports to Asian markets were sharply higher than during the comparative period in 1997/98. Exports have also increased to the Middle East, Africa, and the Americas. Economic problems in Asian markets during 1997/98 resulted in the Australian industry broadening its export focus. Asia will continue to be Australia's major export destination, but the industry is likely to continue efforts to develop a more diverse range of markets.
Average manufacturing milk prices are forecast by the Australian Bureau of Agricultural and Resource Economics (ABARE) to be four percent higher in 1998/99 than during the previous year. This reflects increased export returns which have been enhanced by the depreciation in the value of the Australian dollar.
New Zealand: New Zealands fluid milk production in the 1998/99 season (June/May) declined approximately 4 percent to 11.1 million tons. A severe drought, said to be associated with the end of El Nino weather pattern, was the cause of the decline.
On a total milksolids basis, production dropped from 893,000 tons in 1997/98 to 855,000 tons this year.
The 1998/99 final New Zealand Dairy Board (NZDB) payout to farmers was set at $NZ3.25 per kg milksolids, an increase of $NZ0.25 compared to the previous season. The main factor behind the higher payout despite lower international dairy prices was the increased ability of the NZDB to market a greater proportion of high-value products. This has been one of the stated goals of the NZDB, but with the rapid increases in milk production, it was impossible to implement.
Somewhat lost in news coverage of the restructuring of the dairy industry is that last year New Zealand adopted a new system for pricing dairy products and pooling returns. Dairy year 1998/99 was to be the final year under the old system. Thus the announced payout of $NZ3.25 may be the last time such an announcement is made.
Despite reduced milk production, cheese exports for 1998/99 are estimated at 240,000 tons, 3 percent above last years reduced level and nearly 2 percent above 1996/97, the previous peak. For the first three quarters of the dairy year, the EU and Japan were leading markets while the United States, Australia, and Russia made up the second tier of important markets for New Zealand cheese.
Exports of nonfat dry milk dropped below 200,000 tons in 1997/98 and appear to have declined further in 1998/99. For New Zealand, the economic difficulties in Asia hurt the market for this commodity more severely than markets for butter or cheese.
With some economic recovery in the Asian region, early calendar 1999 New Zealand sales of NDM were up 15 percent with Asian countries responsible for the strongest import growth.
Overall sales of whole milk powder are also expected to show a decline for the year, but only in the 3 to 4 percent range.
Additional information on policy developments in New Zealand is presented in the Policy and Program Developments Highlights section.