'Situation dairy market better than milk prices show'

Milk production growth is disappointing in almost all parts of the world. This is also the case on average in Europe. At the beginning of 2019, an increase of 1,3% was expected, but that growth has recently fallen back. Only Poland and Ireland show strong growth. This is lagging behind in the Netherlands, Germany, France and Italy.

In the United States, the forecast for growth has also been scaled back to 0,3%, where previously there was talk of growth of 1% in 2019. That is also a reason why the futures market in Chicago is showing a significant increase towards December 2019. Australia is producing approximately 8,5 billion kilos of milk this milking season, which is the lowest production in more than 20 years.

New Zealand, on the other hand, achieved growth in the 2018/2019 season (+2,3%), but this percentage is a lot lower than the figure used in October. At the beginning of this year, production fell sharply there.

Question from China
In addition, the demand from China for animal proteins from dairy products is almost certain to increase as a result of the outbreaks of African swine fever. How many pigs It is unclear that China has already lost. However, the estimate is more than 25% of the total pig herd in the country. It is almost inevitable that this will also have an increasing effect on the demand for dairy.

"Pork is becoming scarcer and therefore more expensive," Osinga reasons. "Rabobank has already noted that more cattle are being slaughtered as a result of higher beef prices. In addition, China imported 8% more in April beef. There are no hard figures on the situation surrounding African Swine Fever, but it is no surprise that outbreaks are not always reported."

Inventories not excessive
Cheese stocks in the European Union are at normal levels. The amount of butter in storage is on the high side: 220.000 tons. This seems like companies are turning more towards plant-based alternatives. The stock of milk powder (200.000 tons) is considered low. A lot of milk powder was sold at the end of 2018, but the market seems to have digested this. In the first 4 months of the year, 28% more whole milk powder was exported. Exports of skimmed milk powder, on the other hand, were under pressure and fell by 25%.

The export of whey powder and lactose to China has fallen, partly due to the outbreaks of African swine fever. This has an effect on the Chinese feed market. However, the figures from China are not 100% watertight, but Osinga says based on reliable sources that the country has recently imported approximately 26% less whey powder and 90% less lactose. China does import more whole milk powder (+35%) and baby milk powder (+60%).

A blemish on developments in the dairy market is the development of dairy consumption in Europe. The picture in the European member states is that the consumption of fresh dairy is under some pressure. “The rise of veganism has an impact on the market,” says Osinga. Cheese consumption is still stabilizing or growing in most countries.

Political uncertainty plagues dairy market
When we add everything up, the picture on the dairy market can be described as positive. However, prices tend to show an opposite direction and thus declining milk prices for dairy farmers. According to Osinga, the dairy traders clearly indicate that the many geopolitical uncertainties are to blame. This mainly concerns American import tariffs, the trade war between China and the United States and the uncertainty about Brexit. "Add to this the fact that weaker economic growth is expected and the moderate mood on the dairy market is largely explained," says Osinga.