unkown markets
November 3, 2016

Overseas Production Forecasts Mixed [VIDEO]

 |  By: Fran Howard

Milk production in two of the world’s largest exporting regions is moving in opposite directions. Production growth has started to slow in the European Union due primarily to output-reducing policy measures, while Oceania output is starting to recover.

According to USDA’s recently released Foreign Agricultural Service’s Global Agricultural Information (GAIN) report, output in the EU-28 is expected to grow 1.1% in 2016 on top of 2015’s hefty gain of 2.5%. The GAIN estimate for EU milk production growth in 2017, while less optimistic, is still positive at 152.5 million metric tons (MT), or 336.2 billion pounds, up 0.3%. EU output in 2017 is expected to be more than one and a half times what the United States is expected to produce next year, according to USDA’s latest estimate of 2.16% growth in U.S. output to 217.3 billion pounds.     

“EU milk production growth for 2016 is a tale of two halves,” says Mary Ledman, dairy economist with the Daily Dairy Report and president of Keough Ledman Associates Inc., Libertyville, Ill. “In general, year-over-year growth in the first half of 2016 was robust, but poor farm-level margins and EU supply-reducing policy measures are expected to result in negative year-over-year output in the second half of 2016.”

Ledman notes that more than 52,000 EU producers enrolled in voluntary milk reduction programs this year, which are expected to reduce milk marketings by more than 1 million metric tons, or 2.2 billion pounds, in the last quarter of 2016. Sharp notes that the reduction equates to 11,407 metric tons, or 25 million pounds, from November 2016 through January 2017.

In response to EU regulation, the Netherlands will issue phosphate rights to dairy farmers as of July 1, 2017, based on herd size as of July 2015. Effective January 2018, Dutch producers’ phosphate rights will be cut 10%.

“As a result, the Dutch government expects the nation’s milking herd to shrink between 4% and 8% next year,” Ledman notes. “But for the rest of 2016 and into first-half 2017, Dutch milk production is forecast to post greater year-over-year gains.”

The GAIN report indicates that the EU dairy herd grew 36,000 to nearly 23.6 million head from January 2015 to January 2016. “However, this year, the second consecutive year of lower milk prices, European producers increased culling,” Ledman adds. “The EU milking herd is forecast to begin the New Year with 120,000 fewer cows, but higher production per cow is expected to offset the decline.”          

Turning to Oceania, poor weather on New Zealand’s North Island has stalled expected milk production growth. Even so, New Zealand output so far this season is almost on par with the previous season. According to the Dairy Companies Association of New Zealand, September milk collections of 2.57 million metric tons were 1.1% greater than the same month a year ago but 6.6% lower than September 2014. Four months into the 2016-17 season, New Zealand milk collections are trailing the previous season by 0.2%.

“New Zealand's milk collections typically peak in October, a month that accounts for about 15% of full-season production,” says Sarina Sharp, agricultural economist with the Daily Dairy Report. “Like September, October has also been soggy on the North Island, but the heaviest rains have generally fallen on urban areas, while dairies have been less affected.” The South Island, meanwhile, has fared better.

“Global dairy markets have climbed partly due to assumptions that New Zealand would have fewer dairy products to export this year and that European milk output gains would slow dramatically,” notes Sharp. “But so far, despite financial pressure and a smaller dairy herd, New Zealand milk continues to flow. If this trend continues, the dairy trade may need to recalibrate accordingly.”

For more information watch this week's Dairy Report from AgDay TV below.