Global dairy stocks to remain tight

Published 3 August 17

Tightness in global dairy product stocks looks set to remain, which should support farmgate milk prices through the remainder of 2017.

According to forecasts from DG-Agri and USDA, global milk supplies from the key supplying regions are forecast to grow by around 1% in 2017, equivalent to just under 3.5bn litres. However, relatively higher growth in demand for most products is likely to lead to a further reduction in stock levels. 

Butter stocks look set to fall mainly due to a shortfall in production, primarily in the EU and Australia. Higher domestic consumption in both countries, combined with lower production, will limit availability for exports and put pressure on already low stocks. 

High butter prices would be expected to encourage increased butter production, along with its co-product SMP. However, low SMP prices, which are unlikely to recover during the year due to the high level of SMP in EU intervention stores, mean overall returns for butter production are insufficient to divert milk away from cheese production.

As a result, cheese stocks are expected to stay at similar levels. There are some regional differences in market balances however.  Higher production in the US is expected to be balanced against growing domestic consumption. In the EU, growth in both domestic and export demand are forecast to outstrip additional production, leading to a reduction in stocks.  

The forecasts also suggest further stock depletion of WMP, primarily due to lower import purchasing in China.  The introduction of stricter food safety regulations for the production of infant formula is expected to lead to the release of domestically held stocks, reducing demand for imports.  Although this will impact on NZ exports, the main supplier of WMP to China, it has a range of alternative markets in which to divert its WMP production, which is expected to increase in 2017 on the back of improved milk supplies.

While it appears demand for SMP will increase significantly more than supply in 2017, this is based on forecasts for a relatively large increase in exports from the EU combined with lower production. Whether or not this transpires will be dependent on whether prices remain low enough to prompt additional demand from non-traditional markets.