April 27, 2018

Canada’s Growing Milk Output Outpacing Demand

 |  By: Fran Howard

A few years ago, Canada was experiencing a severe butter shortage, but that has changed. After increasing milk quota allotments, Canada today is facing a saturated milk market in which production is outpacing the country’s growing demand for butterfat. While that’s good news for Canada, it likely means less U.S. butter will be shipped north.

According to Canada’s Milk Producer magazine, “current indicators point to market saturation, resulting in all processors’ cream and whole milk requirements being met from domestic butterfat production.”

Over the past several years, increased milk production in Canada has been funneled into butter production to meet increasing demand. However, that has also resulted in surplus skim milk powder (SMP) output, says Sarina Sharp, agricultural economist with the Daily Dairy Report.
“Despite Canada’s stringent supply management system, the nation’s milk output has grown rapidly in the past few years,” says Sharp. According to Statistics Canada, year-over-year milk production in Canada climbed 4.5% in 2015, 3.6% in 2016, and 6.1% in 2017. “Last year's growth was the largest of any year since 1931,” Sharp notes. “And strong production has continued into 2018.” In January, Canadian milk output rose 5.4% above January 2017 levels.

“The Canadian dairy industry has absorbed the sustained milk production growth by crowding out butterfat imports and dumping surplus skim milk powder onto the global marketplace,” Sharp says. “Going forward, the Canadian dairy industry may have to moderate growth.”

Patrice Dubé, economics director for Dairy Farmers of Ontario, recently said that Canadian dairy producers do not need to continue to produce growing amounts of milk because domestic butterfat output has already grown more than enough to meet demand.

At the same time, Canada’s butter imports have plunged 27% from their peak in 2016. Last year, Canada imported 35.6 million pounds of butter, compared with 48.9 million pounds in 2016, according to Global Trade Information Services.

“Across the border from Canada, however, some dairy producers in New York and Wisconsin are selling out, in part because processors in those states have lost access to the Canadian market for ultra-filtered milk,” Sharp notes.  “At the same time and not surprisingly, Canada’s dairy producers have been enjoying the opportunity to grow. With the country’s blended milk prices down only slightly from a year ago, greater milk output has translated into higher incomes, and land prices are rising in response.”

Last year, the price of Canadian farmland in Quebec, Canada’s top dairy province, climbed 8.2%, according to Farm Credit Canada. Crop producers and supply-managed dairy operations were the main buyers of Quebec farmland. In Ontario, farmland values soared 9.4% due primarily to dairy operations and row crop farmers looking to expand their operations.