July 21, 2004

World Milk Production Forecasts

There have been no major changes in the milk production forecast for all selected countries.

In Oceania, New Zealand's milk output has been revised upwards slightly to 14.88 million tons - a gain of 3.7 percent over the 2002/03 (June-May) season - due to favorable pasture conditions. This is a 2 percent increase in cow numbers, and greater per cow productivity. 

Although there were some flood-affected areas in North Island that impacted dairy production, good pasture conditions prevailed in most of the region.  During the period 1999-2004, Australia's dairy herd grew by an average of 3.6 percent annually. However, there are indications that this rate will decline in the future. The rate of dairy farm conversions has decreased and farmers are consolidating existing dairy operations to improve efficiency in response to lower returns.  

Consequently, for the 2004/05 season, although there are no forecast figures, milk production growth will probably moderate.  Nevertheless, given current firm world market prices, any change in exchange rates that would lead to a depreciation of the New Zealand dollar (versus the U.S. dollar) will likely boost milk production and profits. 

In contrast, the Australian milk production forecast for 2003/04 (July/June) year has been revised down by 2.3 percent to 10.5 million metric tons.  Although there has been a late season recovery in milk production due to improved moisture conditions, it is estimated that cumulative milk production from July 2003 through April 2004 was lagging the year earlier pace by 3 percent. 

However, production in the key state of Victoria - accounting for about two thirds of total Australian milk production - registered a 7 percent increase in milk output from January through April 2004 in comparison to the same period the previous year.  Further, some major cooperatives have already announced increases of 5 percent in the price of milk for the new season.  However, climatic conditions will play a pivotal role in shaping the outlook for the new season. 

Although there has been a marked improvement in moisture conditions, large areas of Victoria continue to endure deficit conditions.  In the latest outlook (dated 06-17-04) for the July-September period, the Australian Bureau of Meteorology issued a neutral report for Victoria and most of Australia noting that "the shifts in the odds are too weak to offer any firm guidance as to the most likely outcome of September quarter rainfall."

In the EU-15, the milk production estimate for 2003 has been adjusted upwards from the prior estimate by nearly 1 percent since farmers in many of the drought-impacted countries were able to use high quality feed to raise milk output.  However, many dairy producers have exceeded their milk quota limits and face significant super levy payments. 

In Germany, farmers surpassed quota limits by 362,000 tons and now face an estimated super levy fine of $158 million (€129 million).  As farmers adjust to quota levels, milk production is anticipated to decline marginally in 2004.  Cow numbers in 2004 are expected to have declined by 1.5 percent continuing the long-term trend of increasing productivity and consolidation within the dairy sector.

In the United States, the milk production forecast for 2004 has been lowered by 1.1 percent from the previous 2004 forecast to levels slightly below 2002 and 2003.  Despite high domestic prices generated as a result of strong product demand, significant milk production increases are not anticipated.  Dairy producers have been constrained in their ability to expand herds or raise milk production due to tight heifer supplies (both domestically and from Canada), the rationing of Recombinant Bovine Somatotropin, high feed prices (specifically unfavorable milk feed ratios), and uncertainty over future dairy prices.