Wednesday, October 17, 2018
 Industry Analysts Predicts Undersupply of Milk in 2013  


Slowed dairy growth and a shortage of milk powder might be positive signs of a price boost for U.S. dairy producers, but weather and world economies could prove to be the wild cards in the next 12 months, according to analysts from the U.S. Dairy Export Council.

Alan Levitt, vice president of communications and market analysis, and Marc A.H. Beck, executive vice president of strategy and insights, analyze trends and forecast the global dairy markets looking out into 2013.

Milk Powder Shortfall
“The world just doesn’t have buffer stocks of powder anymore,” says Levitt. By the end of this year, he expects U.S. and EU supplies to be half of what they were one year ago. While butter and cheese will also be tight next year, he believes the shortage of milk powder, particularly skim milk powder (SMP), will be “problematic.”

“Something has got to give,” he adds, predicting that at some point in the next year buyers will realize the market is short. “I’m not sure the supply is going to be there at the current price.”

Beck echoes his comments, saying, “Recent growth rates in SMP exports are unlikely to be sustained given 2013 milk production expectations.” Based on current trends showing slowed export growth, the market could be anywhere from 40,000 to 110,000 metric tons short of demand.

The challenge in the United States, says Beck, will be to balance the needs of the international market with the needs of the domestic market. “Global SMP supplies will be tight, but the U.S. market is still driven by cheese,” he forecasts. “Watch for the point at which U.S. milk powder is worth more to an international SMP buyer than to a domestic cheese plant for fortification.”

Slower Milk Supply Growth
The shortage of milk powder is the result of tough times for dairy producers worldwide. Tight margins are not only a challenge to U.S. dairy producers; the squeeze is being felt in Europe, New Zealand and other countries that supply the milk demands of the world. A peak of profitability this fall has reverted back to below breakeven, and Levitt does not expect that to change going into 2013. These conditions will discourage expansion, thus flattening world output after two consecutive years of tremendous growth. He explains, there was increased global demand that drove the need for more production, but that push has slowed in recent months.

“For the current year, our estimate based on how the season has started is production in these five countries [European Union, United States, New Zealand, Argentina and Australia] is going to be flat,” he states. “That means we are going to be undersupplied in 2013.”

Beck further points out that if New Zealand export growth continues to slow at a rate of 5 percent below historical trends and Argentina by 10 percent, the market could be undersupplied by just under 100,000 metric tons. The EU, United States and Australia will not likely to be able to make up that difference, coming up 54,000 metric tons short of the demand.

“A big challenge in terms of cost of production is the weather,” Levitt says. Though the nationwide drought has died off in the headlines, the reality of its persistence cannot be ignored. “We are not out of the woods yet,” he states, as dry conditions are expected to continue through at least February.

According to the U.S. Drought Monitor, roughly two-thirds of the country is classified as abnormally dry or experiencing some level of drought. The most severe level of “exceptional” drought happens to be over the Ogallala Aquifer, which is the irrigation source for more than a quarter of the United States. With a large portion of the hay and corn supply produced in this region, conditions here will influence the cost of feed and cost of production for dairy producers. Already, cow numbers are dropping by the thousands in the West and Southwest. For California, Arizona, New Mexico and Texas, the total decline in cow numbers is more than the rest of the country combined.

While dry conditions raise havoc domestically, a leading dairy exporter to the south is experiencing the opposite extreme. Rainfall and flooding in Argentina have pushed out planting, and with worldwide grain stores already low, a potential shortage could mean even greater vulnerability when it comes to input costs.

Uncertain Global Economic Conditions
Political and economic uncertainty continues to plague the United States. As we toe the edge of a fiscal cliff, there is a looming fear of suffering the same fate as some of the European nations that have plummeted into an economic recession. The bad news for dairy here, according to Beck, “That all will mean slower growth in dairy consumption in those major markets.”

The bright spot for consumption potential continues to be China. Signs of accelerated growth in 2013 will support regional economic growth in Southeast Asia. “We expect increased export opportunities at higher prices for U.S. exporters as international consumers, especially those in Asia, are willing to pay more for their marginal unit of dairy consumption than U.S. consumers,” Beck says.

He further notes that if oil prices hold steady into 2013 that could also boost product demand. Increasing incomes in oil exporting nations could lead to increased dairy consumption demand.

Source: Agri-View

Posted on Friday, December 28, 2012 (Archive on Friday, January 04, 2013)
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