EU milk collection was up by 1.5% in the first 9 months of the year. Among the big producing Member States, only France and Italy registered decreasing deliveries. In the UK, Poland and Spain, deliveries continued to be higher than in the same period last year, but the trend reversed in September.
In Germany, Ireland and the Netherlands, deliveries continued to constantly increase.
Average farmgate milk prices approximated 29.9c/kg in September and a further slight increase is likely in October (30.1c/kg). Cashflow difficulties at farm level continue to be crucial for the short term.
Applications for private storage aid have reached 157,000t for butter and 59,000t for skimmed milk powder (SMP) since the opening of the scheme in the wake of the Russian import ban. The latter figure contains 4200t SMP under the enhanced PSA scheme. With regard to offers for sale into intervention, after having decreased week after week from the end of September till mid-November, a surge appeared last week (1800t SMP, most of it in Belgium).
New pressure is building up on dairy product quotations, after having recovered since their lowest level in August. SMP prices have reached intervention level or even underscored it for feed uses. On the world market, prices expressed in US$ generally decreased, except for EU cheddar (stable) and Oceania butter (+ 1.8%). Lower US prices for SMP and cheddar can be related to lower US exports and higher stocks.
The assessment of EU stock levels based on a residual approach (production plus imports minus consumption minus exports) confirmed important stocks for SMP, above normal needs and without reduction in July-September (against normal seasonal pattern).
They might weigh heavily on the market at the beginning of 2016 when EU milk production starts to rally for peak production.
The picture is clearly better for butter whose stock level is normal and declined in July-September.
With regard to cheese, stocks increased in September against the normal seasonal pattern, since only half of the export lost to Russia could be compensated by sales elsewhere.
The increase of milk production after its lowest point in November is likely to put pressure on cheese production, once drying towers have reached full capacity.
At world level, milk production increased by some 2.5 million tonnes in the first 9 months of the year, mainly due to the EU (+1.7 million tonnes) and the US (+1 million tonnes).
EU milk production is declining seasonally but volumes remain above 2014 levels.
US production growth slowed down in August-October. The USDA forecast for the year was reviewed downwards at +1.3%.
NZ forecasts lower production for the new season (-5%), while Australia expects +2% for the season.
Demand in the US and in other developed markets remains solid.
With regard to EU internal consumption, no significant signs of recovery at retail level was mentioned for France, Italy, Spain and Portugal, while milk sales increased by 2.6% in volume in the UK. Supply chain dialogue continues in an effort to bring elements of stabilisation for all concerned.
A dedicated presentation was made on the effects of the free trade agreement between China and NZ and implications for the EU dairy sector.
While NZ dairy products will benefit from zero duty in China in 2019 at the latest (with some products enjoying already zero duty since 2012 and others to come in 2017), the growth of NZ and EU dairy exports to China over the last 8 years shows comparable impressive developments.
NZ and the EU have developed market shares in the Chinese market for different products (commodity products for NZ, infant formula for the EU).
China's growth has allowed competing exporters to each get a share. The question is to which extent this will still be possible if China's dairy boom slows down.
