Dairy Production and Trade Developments

This edition of the "Dairy: World Markets and Trade" circular is based on post reports submitted since July 2002 and on available secondary information.  Also, reflecting the greater availability of information electronically, starting with this edition, production and trade data for some countries is only shown in aggregate.   Detailed data for both listed and non-listed countries can be found on the following website:  http://www.fas.usda.gov/psdonline/psdHome.aspx

 The individual country reports can be obtained from the following website:
            http://www.fas.usda.gov/scriptsw/attacherep/default.asp

Situation and outlook information on the U.S. dairy industry can be obtained from:
           http://www.ers.usda.gov/publications/so/view.asp?f=livestock/ldp-mbb/

Summary

The major feature affecting international dairy trade at the current time (mid-December 2002) is the growing strength of international prices, particularly for nonfat dry milk (NDM).   Butter and whole milk powder (WMP) prices have also moved upward in recent weeks.   Movements in international cheese prices have been less buoyant.  Confounding the outlook for future prices is likely movement of exchange rates.  Currently, the important U.S. dollar to EU euro exchange rate is hovering around parity.  

Aggregate cow milk production in selected countries for 2003 is forecast 392 million tons, about a half percent above 2002.  The United States and India account for most of the increase in the year-to-year total.  Declines are forecast for Australia and Argentina. 

Milk cow numbers for 2003 are forecast at 124.7 million head, slightly below 2002.   For the selected countries in aggregate, per cow productivity is forecast to show another increase of approximately one percent.

Cheese production is expected to reach 12.6 million tons in 2003, only slightly above the revised 2002 estimate.  U.S. production is expected to be up, the EU is forecast to be stable, while cheese production in Oceania declines.  Forecast cheese exports in 2003 are up approximately 3 percent as import demand continues to grow.  Stocks are forecast to decline during the year. 

Butter production in aggregate is forecast to increase about one percent with nearly all of the growth in the ‘others’ (mainly India) category.  Imports are expected to grow, with Russia accounting for most of the growth.  In 2003, reduced butter exports from Australia and New Zealand cause aggregate exports to show a small decline. 

As mentioned, international butter prices have risen from their 2002 lows but they are expected to remain well below those of cheese and NDM. 

Nonfat dry milk production in 2003 is forecast at 3.4 million tons, 2 percent below 2002. Most of decline is due to the EU and the United States where 2002 output was boosted by price support activities.  Aggregate exports are expected to increase in 2003 with some of the increase due to rising shipments of food aid. 

Trade and Other Issues

United States

Despite soft demand and low prices, U.S. milk production continues to expand at a brisk pace.  Milk production during the first 11 months of calendar 2002 was approximately 2.7 percent above year earlier levels.  Monthly production in the 20 leading states for November was up 1.8 percent compared to November 2001.  Production growth of one percent is forecast for 2003 and more robust demand growth is expected to bring higher prices in the second half of the year.

In an effort to bring better balance to the markets for butter and NDM, in mid-November USDA increased the support price for butter to $1.05 per pound, and decreased the support price for NDM to $0.80 per pound. These changes were effective for product manufactured on or after November 15, 2002.  The relationship between the support price and international prices for NDM are presented by the graph on the front cover.

Canada

Cheese exports in 2002 are estimated at 12,000 tons and are forecast to decline again in 2003.    Some of the downturn is likely due to reduced contracting under the Provincial export programs, which are outside the domestic supply-management system.  During 2002, low international prices have reduced the incentive to use these export systems.   Also these systems are the subject of a WTO dispute with a final decision likely by the end of 2002. 

Another factor that has affected exports during the past 3 or 4 years is that Canadian processors have greatly expanded their use of Canada’s Import for Re-Export Program.  Trade under this program explains some of the increase in both imports and exports shown for Canada. 

Canadian exports of NDM are estimated at 60,000 tons in 2002 and are forecast to remain at that level next year.  Most NDM exports under traditional subsidy programs.

Mexico

Mexico’s 2003 output of milk is forecast to increase only marginally.    Most of the increase is expected to come from large dairies as they modernize and improve their herd management skills.

Cheese consumption is forecast to continue to increase as a result of population growth, and the improving economic situation.  In addition under NAFTA, cheese from the United States will enter duty-free starting in 2003.  A significant amount of cheese demand focuses on high-quality cheeses, which generally are not produced domestically. 

Year-to-date Mexican import data for NDM and cheese are shown below.  (Source: World Trade Atlas (WTA))

European Union

EU milk production is subject to an annual quota system with relatively steep penalties for over-quota production with the result that milk production tends to change little from year to year, rather, the mix of products varies depending on market prospects for each.  A second important factor is that preliminary changes are being introduced to facilitate membership for many former Eastern European countries.  One of the important impacts of those changes is increased import access for dairy products from likely new members.  

During 2002, the EU dairy sector has been significantly affected by the decline in international prices and the reduced prospects for profitable exports.  As a result, intervention buying of NDM and butter was quite active and stocks of both rose.  The recent improvement in export prospects should enable the EU to boost its exports in 2003; however some buildup in stocks may still occur due to soft domestic demand.

Russia

The Russian dairy sector has largely stabilized and with better feed supplies milk production is up slightly in 2002 and is forecast to be relatively stable to 2003.  Cow numbers continue to fall, but better feed and management are facilitating increased productivity.  Imports of butter and cheese are forecast to increase again in 2003.

Japan

Japan’s 2003 fluid milk output is forecast unchanged following a modest rebound in 2002.  Fluid milk utilization for drinking is expected to increase in 2003, while processing use will likely decline.  With the stock buildup in the last two years, the NDM surplus situation is expected to continue in 2003.  Japan’s butter production is forecast to fall in 2003 and butter imports under current access rules are expected to continue in 2003.  Cheese imports are expected to grow nearly 2 percent in 2003, supported by strong demand for natural cheese

The following table shows Japan’s year-to-date imports of cheese.  (Source: WTA)

Australia

Milk output in 2003 (July/June 2002/2003 marketing year) is forecast at 11.0 million tons, approximately 5 percent below 2002’s record level.  Much of the country is affected by a severe drought that is impacting pastures and the availability of other feedstuffs. 

Australian dairy production is mainly based on pasture production so it is not clear how much supplemental feeding will be used to offset of the impact of the drought.  Further, since approximately half of Australia’s milk production is exported as products and international dairy product prices have been low­­--at least for the first half of the season--it is likely that supplemental feeding involving additional feed costs would not be advantageous for many producers. 

Despite the reduction in milk production, exports of cheese and NDM are expected to grow somewhat in 2003 as a result of substantial stocks carried over from 2002.

The following shows year-to-date exports for Australian cheese, butterfat, and NDM.  (Source:  WTA)

New Zealand

Fluid milk production in the 2002/2003 season (June/May) is forecast at 14.2 million tons, up 2 percent.  The slow growth is due to poor price prospects, particularly at the beginning of the season, increased costs for adding production, and dry conditions in some dairy region.

Early in the season Fonterra, the successor to the New Zealand Dairy Board (NZDB) announced that its estimated payout for the 2002/03 season would be NZ$3.70 /kg of milk solids (protein plus butterfat).  That figure is down sharply for the previous year when it was NZ$5.35/kg.

Fonterra also increased the amount producers must pay when they add to their peak production.  The new fee is NZ$3.85/kg of milk solids compared to NZ$2.00 previously.

Much of the South Island, where milk production is growing fastest, has been affected by cold, dry weather during the first half of the season.

With relatively slow growth in milk production, exports of dairy products will also grow at a slow to moderate pace.  New Zealand has a strong history of contracting for delivery well into the future with the result that the mix of actual exports depends, in no small measure, on price anticipations at the start of the season rather than on how prices develop during the season. 

The following tables show year-to-date exports for New Zealand cheese, butterfat, and NDM.  (Source:  WTA)

Last modified: Thursday, April 06, 2000