March 20, 2018

EU responsible for excess global milk supply

There's too much milk in the world today, and the excess is coming from the EU, which has "a veritable mountain of skim milk powder (SMP) that entered warehouses back when David Cameron was still prime minister of the UK". (Cameron was PM from 2010 to 2016.) This is according to the US Dairy Export Council in its "Global Dairy Market Outlook" report released in early February.

Earlier, the USDEC said the world dairy demand today can only support milk production growth from the major exporters of about 1.5% a year. However, in the second half of 2017, the growth rate from the EU, the US, New Zealand, Australia and Argentina was about double that. "Since September, nearly all the surplus growth is coming from Europe", USDEC said in its report written by Alan Levitt and Marc Beck.

USDEC said some of the increase was a function of a weak comparable, recalling that the European Commission paid farmers to cut back on production in the fourth quarter of 2016. "But with processor payout prices that increased more than 30% in 2017, farmers have responded", the report said.

USDEC also cited the matter of intervention stocks of skim milk powder (SMP), which are still nearly 380,000 tonnes. The Commission said it would not add any more to the stockpile this year, which takes out the floor price, though it was already more than €300 below the fixed €1,698 euro/tonne price.

"That means there's some room to go down a little further", said USDEC, adding that it would take some other creative measures besides price - like food donation, feed use amd overseas placement—to clear the inventories.

Meanwhile, the US, too, is sitting on record powder inventories that continue to grow, according to USDEC. Yearend holdings were 150,000 tonnes, up 47% from the previous year.

Milk production growth in the US slowed in the last four months of 2017, up at just 1%. Feed costs remain low, but milk prices are down nearly 20% from a year before, squeezing margins. USDEC said modest production growth of around 1% is expected for 2018.