EU continues to pump more milk even amid weak dairy prices, Fonterra says

Friday 17th June 2016

European Union dairy production has continued to increase, even as output eased in other major exporting countries in response to low milk prices, according to Fonterra Cooperative Group's latest Global Dairy Update.

Milk production in the EU rose 7 percent in March compared with the same month a year earlier, taking the annual growth rate to 4 percent, Auckland-based Fonterra said in its update. That contrasts with a 1 percent decline in production in both New Zealand and Australia in the 12 months through April, Fonterra said. In the US, production advanced 1 percent in the year through April, although it's exporting less due to a pick up in domestic demand.

Primary Industries Minister Nathan Guy said last week that the world is "awash with milk" amid softer demand from China and oil-producing countries, and as global supply is bolstered by a Russian ban on European Union products and the lifting of European production after quotas were removed. The Ministry for Primary Industries said yesterday that dairy prices still face headwinds from increased milk production in the EU and this is expected to keep prices low for the remainder of 2016. EU production is stabilising at higher levels but any global price increases are likely to be met with increased EU production and a run down of its inventories, meaning a significant export recovery isn't forecast until the 2017/18 season, MPI said.

"Milk production has been strong in the EU," Fonterra said in today's update. "This is despite local milk prices continuing to decrease and being below the same period last year."

The EU Commission has forecast the region's milk deliveries will increase 1.4 percent in calendar 2016.

In New Zealand, Fonterra said its milk collection in the 2015/16 season to May 31 declined 3 percent to 1.566 billion kilograms of milk solids (kgMS) compared with the year earlier.

"Lower milk collections were largely a result of the low milk price environment, with farmers reducing stocking rates and supplementary feeding to reduce costs," Fonterra said.

In Australia, Fonterra's milk collection in the first 11 months of the season through May 31 is down 3 percent to 115 million kgMS.

"Production has been heavily impacted by the reduction in Australian milk prices to align with global dairy prices," Fonterra said.

The cooperative forecast its milk collection across New Zealand and Australia would fall 3 percent to 1.523 billion kgMS in the 2016/17 season.

"This reflects the likely impact of farmers using more traditional practices to manage their businesses within the limits of an ongoing low milk price," Fonterra said. "Farmers have reduced stocking rates and supplementary feeding over the past two seasons to help lower costs."

EU dairy export volumes increased 16 percent in February, compared with the same month a year earlier, after adjusting for an extra day in February this year. On an annual basis, the region's exports gained 11 percent to 476,000 metric tonne. In contrast, New Zealand exports volumes in the year through April advanced 3 percent to 87,000 MT, and Australia's volumes gained 6 percent to 41,000 MT in the year through March, while US exports declined 6 percent to 132,000 MT in the year through March.

Meanwhile, China, Asia and Latin America continued to see strong growth in dairy imports, while the Middle East and African imports softened, Fonterra said.

China, the world's largest importer of dairy products, increased imports 9 percent in April compared with the same month a year earlier, driven by an 80 percent jump in fluid and fresh dairy imports, Fonterra said.

On an annual basis, Chinese dairy imports in the 12 months through April gained 18 percent to 333,000 MT, as fluid and fresh dairy soared 60 percent, infant formula jumped 48 percent and whey powder increased 19 percent.

BusinessDesk.co.nz

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