China's whole milk powder imports, whose soaring growth this year has been key to supporting dairy prices near record levels, are to grow nearly as fast in 2014, with purchases of skim milk powder and whey to prove strong too.
November 2013 Totals
China purchased a record-breaking 93,151 metric tons (MT) or 205 million lbs. of whole milk powder (WMP) in November 2013, up 72% from already high import volumes in October 2013 and nearly three times higher than in November 2012. New Zealand accounted for more than 90% of the total, sending a record-large 83,552 MT (184 million lbs).
China imported 23,158 MT (51 million lbs.) of skim milk powder in November 2013, up 5.3% from October and 152% greater than November 2012.
Dairy Import Outlook for 2014
China's whole milk powder buy-ins, which jumped 28% to a record 520,000 tons this year, will surge 25% in 2014 too, driven by demand from manufacturers of the likes of infant formula and yogurt, the US Department of Agriculture's Beijing bureau said.
Underlying market trends of "strong population growth, continued urbanization, higher incomes and nutritional concerns" are driving the popularity of whole milk powder, the bureau said.
However, China's own production is being squeezed by a dearth of capacity, besides domestic milk output growth which is struggling to keep up with consumption expected to rise 6.8% to 38.6m tons next year.
"With a growing population and changing dietary demands from increasingly urban dwellers, China's milk demand will likely continue to outpace its local milk production, resulting in additional dairy imports in 2013 and 2014," the bureau said.
Whole milk vs Skim
Indeed, Chinese imports of skim milk powder will rise by 15.0% to 230,000 tons in 2014, accelerating a little from the 14% rise this year.
"Non-fat dairy milk is normally substituted for whole milk powder when prices are too high," the bureau said, noting that in 2013, "the non-fat dairy milk import price increased by 14% to an average of $3,834 per ton, making it higher than the whole milk powder price for the first time since 2008".
Whole milk powder, containing extra fat, should in theory be more expensive that skim milk powder. Furthermore, cheese imports will rise by 18% to nearly 45,000 tons, and why purchases by 20% to 442,000 tons.
Imports of fluid milk itself will grow even faster, by 67% to 300,000 tons, spurred by demand for ultra-high temperature (UHT) treated milk products which "are a new trend in first-tier Chinese cities.
"Retailers note that lower-priced pasteurized or UHT milk is one of the fastest selling products in China's marketplace. China's growing population of older consumers located in the first-tier cities tend prefers to consume skim or low fat milk, which should continue to support a positive trend for imported UHT milk products in large urban areas."
It is relatively easy for foreign products to compete on price when domestic milk is particularly expensive, costing 3,735 yuan ($582) a ton at the farmgate level in the first half of the year – 63% above the world average price of $357 a ton, according to the bureau.
However, it is China's whole milk powder dynamics on which dairy investors may particularly focus, given their extent, and their importance to the world dairy market overall.
Fonterra earlier this month blamed its inability to turn more than 70% of its output into powders for an $800m value gap, given their relatively strong prices compared with the likes of casein and cheese that the co-operative was forced by capacity issues to process milk into instead.
The prospect of strong Chinese imports comes against a backdrop of recovering output in many major producing countries, and in particular New Zealand, the top exporter.
Rabobank last week forecast world dairy prices in 2014, softening a little, with "supply continuing to rise fast enough to loosen the market further" in the second half of the year.