"The headlines at the start of the new year are dominated by anxiety over global commodity and equity markets. Oil prices are at 12-year lows. Grain prices are at their lowest since 2009 and the outlook keeps softening. Global stock markets are rattled. Concerns about the health of China’s economy continue to spread. This broadly reflects a fragility in the world economy, which doesn’t suggest a near-term turnaround in dairy. The fragile world economy at the start of the year certainly doesn’t suggest a recovery in dairy markets any time soon." the USDEC reports.
In terms of drivers of the global dairy market, the threat of El Nino to NZ milk production has softened as NZ moves past its peak. In addition, European milk production shows little sign of slowing. USDEC estimates November European production to be up 4% (as it was in October), and expects a 1 – 1.5% year-on-year gain in the first half of 2016.
Chinese imports were above year-ago levels in November, and NZ exports to China were also up dramatically in November suggesting an increase in Chinese import volumes for December as well, USDEC reports. However, it’s thought that the end-of-year increase is China’s annual binge on low-tariff milk powder from NZ, which resets at the start of the year.
Heavy inventories on both ends of the supply chain also limit recovery prospects. Buyers have plenty of product in the pipeline and suppliers are also well stocked up.
USDEC reports that US exports in November were down 24% on November 2014, and at the lowest figure for nearly five years. On a year-to-date basis (January to November), US exports are down 27%. Exports to Mexico, the US’s largest import partner, were down 22% for the January to November period, compared to the same period in 2014.
Growing stocks of dairy commodities are weighing on prices in the US, though prices have generally stabilised. The exception is butter. While stocks of butter are high – November inventories are up 23% from 2014 – US butter prices are also comparatively high, driven by a strong domestic market.
US milk production growth has slowed right down – with growth of just 0.4% year-on-year in the September to November period. During that stretch, production in California was down 4.6 percent, while output in the rest of the country expanded by 1.7 percent. The USDEC reports "continued growth in milk output in the US has been jeopardized by a severe early-January blizzard in New Mexico and Texas, which killed a significant number of cows. This event could knock an estimated 0.3% off U.S. output in the months ahead."
Read the outlook report, authored by Alan Levitt and Marc Beck, here.
