EU milk production
EU milk collection was up by 1.5% in the first 9 months of 2015. 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 production slowed in September. In Germany, Ireland and the Netherlands deliveries continued to constantly increase.
EU milk prices
Average farm gate milk prices approximated 29.9 c/kg in September with a slight increase in October (30.1 c/kg). Cash flow difficulties are apparent at farm level across the EU. Applications for private storage aid have reached 157,000t butter and 59,000t SMP since the opening of the scheme. The latter figure contains 4,200t SMP under the enhanced PSA scheme. Volumes being put into storage have been decreasing since September with a surprising surge last week.
New pressure is building up on dairy product quotations, after a slight recovery since the low August levels. SMP prices are under intervention levels with large quantities being sold 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 are related to lower US exports and higher stocks.
EU stock levels
Levels of SMP in storage are higher than normal and will weigh heavily on the market at the start of next year. Butter stocks are at normal levels having declined between July - September. Cheese stocks have increased in September with only half the Russia export volume finding a new home. Recent increases in milk production will put pressure on cheese production, once drying towers have reached full capacity.
World dairy production
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 t) and the US (+ 1 million t). EU milk production is declining seasonally but volumes remain above 2014 levels. Demand in the US and in other developed markets remains solid.
EU consumption
On EU internal consumption, no significant signs of recovery at retail level have been seen in France, Italy, Spain and Portugal while milk sales have increased by 2.6% in volume in the UK (mainly due to population growth). Supply chain dialogue continues in an effort to bring elements of stabilisation for all actors concerned.
NZ-China Free Trade Agreement
An interesting presentation was given on the impact of the FTA between China and NZ and implications for the EU dairy sector. NZ dairy products will benefit from zero duty by 2019 with large proportion already at this level. The growth of NZ and EU dairy exports to China over the last 8 years shows impressive developments even when the EU tariff barrier is taken into consideration.
Conclusion
In conclusion market sentiment is more bearish after Thanksgiving, Christmas and New Year uplift. Improvement in the supply/demand equation remains necessary.