EU milk production was up by 1.1% in the first 7 months of the year, but by 2.8% in the first 4 months after milk quota expiry. Production increases were registered in 16 Member States in the 7 month period and in 19 Member States in the period April-July.
Average farmgate milk prices approximated 29.7c/kg in July (12% below the last 5 years' average) and a further decrease is expected in August (- 0.9%). Announcements for the months to come give a mixed picture: some expect further price cuts while others expect stable prices. Organic milk prices continue to offer better returns to producers.
A slight recovery in the margin index was observed in the 2nd quarter thanks to decreasing feed costs. Immediate cashflow difficulties remain predominant. The solidarity package for farmers announced early September was positively received by farmers as a tool to help solve crucial financial problems at farm level, while market stabilising tools still need to show how effective they can be, depending on their uptake.
Applications for private storage aid have reached 150000t butter and close to 50,000t skimmed milk powder (SMP) since the opening of the scheme in the wake of the Russian import ban, while offers for sale into intervention now cover close to 20,000t SMP.
Dairy product quotations have shown signs of recovery over the last 2 weeks. On the world market, prices generally increased, especially for Oceania and the US. The last three GlobalDairyTrade auctions closed with double digit increases in the global index, pushing market sentiment upwards.
The assessment of EU stock levels based on a residual approach (production + imports – consumption – exports) confirmed important stocks for SMP. The picture is more optimistic for cheese (where stocks are comparable to 2012 levels) and butter (declining trend started in July).
At world level, milk production increased by some 1.8 million tonnes in the first half of the year, mainly due to the EU (+ 833,500t) and the US (+ 766,000t). There is no sign of production slowdown in the EU but the USDA is revising downwards its world production forecast. World exports are decreasing, reflecting demand slow down, but EU exports remain dynamic for most dairy products. China imports are back to normal levels, i.e. below the 2013-2014 peak volumes but above 2012. Concerns remain with regard to possible difficulties in oil producing countries traditionally importing dairy products, given decreasing oil returns. Assessing the stock situation in importing countries remains an open question.
With regard to EU internal consumption, latest retail price decreases were depicted as resulting from the market surplus situation. Over the summer, retailers addressed local situations at individual level and supply chain dialogue was opened in a number of cases. Actions have been taken to promote internal consumption. Consumption patterns tend to be local, but overall a decrease in drinking milk volume sales is observed, while other dairy categories experience better performance.
For the short-term outlook, cumulative EU milk deliveries in 2015 were estimated to increase by 1.1%. Milk production increases continue in IE, HU, NL, ES, PL, UK, while downward trends are expected in FR and DE. Production would continue to increase in 2016 but by no more than 0.9%. For 2015, increased milk production would translate into 1.3% more cheese (and a stock increase by 30,000t), 7.5% more SMP (and +25,000t stocks) and 4% more butter (and +5,000t stocks).
Overall, there is some perception that the worst might be passed but nobody would bet on asserting that the slight recovery signs noticed in the latest weeks already point towards a lasting positive trend. While the supply/demand imbalance persists, market sentiment has improved.
