December 26, 2016

World WMP Markets to Strengthen as Chinese Imports Climb in 2017

 |  By: Fran Howard

Barring any unforeseen trade wars sparked by the incoming U.S. administration, next year could be a better year for U.S. dairy exports to China.

According to USDA’s Foreign Agricultural Service’s Global Agricultural Information Network (GAIN) report, China’s fluid milk imports in 2017 are expected to soar 38% to 900,000 metric tons (MT). “The large anticipated increase in China’s fluid milk imports is the direct result of a declining national herd and low milk prices in the European Union and New Zealand, the largest exporters of fluid milk to China,” says Mary Ledman, dairy economist with the Daily Dairy Report and president of Keough Ledman Associates Inc., Libertyville, Ill.

While Chinese and U.S. relations have been strained of late due to comments made by President-elect Donald Trump, the GAIN report notes that U.S. dairy imports to China are currently being hindered by China’s recent registration requirements. “This regulation-led slowdown in U.S. imports to China comes despite Chinese consumers’ highly favorable perceptions of U.S.-origin food products,” notes Ledman.

Milk production in China is slowing, which means the country will likely rely more heavily on imports. The GAIN report estimates that output in the world’s most populous country in 2016 will drop 5% below a year ago to 35.7 million tons. “The drop comes on the heels of lower milk prices, which have triggered a 10% decrease in China’s dairy herd,” notes Ledman.  At the start of 2017, China is expected to have 7 million dairy cows, down 12.5% from 8 million at the start of 2016.

“Between 60% and 70% of China’s fluid milk production originates on large-scale dairy farms, while small to moderate size dairies supply the rest,” Ledman says. “Significantly lower milk prices in 2015 and into 2016 resulted in the retirement of many small dairy farms and a reduction in herd size on many of China’s large dairy operations. In addition, feed rations were adjusted, which also slowed milk output.”

In China, domestic milk production competes with reconstituted whole milk powder (WMP). Low WMP prices this year spurred Chinese dairy processors to reconstitute more WMP for fluid milk and other dairy products, which reduced demand and prices for domestic fluid milk production, Ledman adds.

China’s WMP imports have been stagnant of late, but they are forecast to reach 460,000 MT in 2017, up 15% from this year. “If the GAIN report is correct, larger WMP imports by China would buoy global milk powder prices and potentially narrow the difference between WMP prices in China and the rest of the world,” Ledman says.

China’s October WMP imports rebounded 42% from September levels to 10,152 MT but trailed last year’s imports by 11%, according to recently released data from the Global Trade Atlas. Year-to-date through October 2016, WMP exports to China of 351,883 MT were up 18% from the comparable period in 2015. While the vast majority, 92%, of China’s October WMP imports originated in New Zealand, the United States commanded 7% of China’s faltering skim milk powder (SMP) trade in October. China’s total SMP imports of 9,101 MT were 14% lower than last year and the lowest monthly volume of the past 13 months.