Dairy Market Outlook Soft Through First Half of 2018
It’s news no one really wanted to hear. But the U.S. Dairy Export Council’s (USDEC) Market Outlook, released last week, shows little sign of dairy market improvement through the first half of 2018.
In a nutshell: “Looking ahead, we expect the markets to remain oversupplied through the first half of 2018. Conditions should move toward balance in the second half of next year, but we may still be dealing with an overhang from earlier excesses,” says USDEC analysts Alan Levitt and Marc Beck.
The biggest problem is growing milk production. Typically, export markets can absorb 1.5% production growth. But production from the top five exporters—the European Union (EU), United States, New Zealand, Australia and Argentina—grew by more than 2% since June. And USDEC expects output to be up nearly 2% through the first half of 2018.
Over-shadowing the market are large EU and US stocks of skim milk powder. The EU is currently sitting on 380,000 metric tons of aging SMP while U.S. stocks sit at about 140,000 tons. Combined government and commercial SMP stocks now total about 600,000 tons, which is more than triple the normal working level.
Canada is adding to the angst by dumping its Class 7 powder product on to world markets at $1,850/ton, or $200 to $300/ton less than offerings from the U.S., EU or New Zealand. Prior to the creation of Class 7, Canada was exporting 1,000 tons per month. Now, its shipping some 8,000 to 10,000 tons per month. “That’s not an incidental volume; it’s equivalent to about 5% of world trade,” say Levitt and Beck.
Read the entire USDEC Outlook report here.