The EU’s Milk Market Observatory (MMO) has said the bearish sentiment within dairy markets will persist until an improvement in the global supply and demand balance can be reached. The MMO said that starting stock levels of dairy commodities in 2016 are higher than previous years after global demand for dairy in 2015 failed to match production.
As such, a clearing of these stocks will need to happen before the market can begin to improve. The bearish outlook for dairy markets is compounded by the current uncertainty in the global economy.
The MMO notes that the price gap between milk prices paid to farmers in individual EU member states is widening. The MMO adds that while some costs for producers have declined (fertiliser, energy and feed), the current market situation is not tenable for all producers in the long run.
From a demand perspective, the MMO says the purchasing power of oil-producing nations, concerns about the real economic health of China, political relations with Russia and political instability in major dairy importing regions pose the greatest threat to the European sector in the year ahead.
On a more positive note, the MMO says the comeback of Iran as an import market and a more competitive euro have the potential to help arrest the current market downturn from a European perspective.
European dairy exports
According to the MMO, EU dairy exports for 2015 performed well in volume terms, albeit at reduced prices, despite reduced global demand for dairy. Chinese dairy imports have been improving steadily since last summer and continue to show positive signs.
Increased demand for EU butter exports in 2015 from the US, Japan, Egypt and Mexico have helped offset some of the volumes of butter no longer sent to the Russian market since the food export embargo. Similarly, the Russian market is closed for European cheese exports but increased shipments of cheese to Japan, the US and South Korea have helped mitigate this somewhat.
Stock levels
European stocks of skimmed milk powder (SMP) are above normal according to the MMO and will continue to weigh on market prices.
Butter stocks are closer to normal, reflecting the greater resilience in butter prices and strong export demand from the US. Dairy product prices will continue to suffer from downward pressure with the increase in EU milk production expected to continue, particularly in northern Europe.
EU milk production has increased by 2.2% in the first 11 months of 2015, with the largest increases in terms of milk volumes coming from Ireland, the Netherlands and Germany. On the world stage, US milk production for the first 11 months of 2015 was 1.3% ahead of the same period in 2014.
US production is forecast to increase by a further 1.2% in 2016, while in New Zealand it is believed milk production will fall off by as much as 5% in the coming 12 months.
As such, a clearing of these stocks will need to happen before the market can begin to improve. The bearish outlook for dairy markets is compounded by the current uncertainty in the global economy.
The MMO notes that the price gap between milk prices paid to farmers in individual EU member states is widening. The MMO adds that while some costs for producers have declined (fertiliser, energy and feed), the current market situation is not tenable for all producers in the long run.
From a demand perspective, the MMO says the purchasing power of oil-producing nations, concerns about the real economic health of China, political relations with Russia and political instability in major dairy importing regions pose the greatest threat to the European sector in the year ahead.
On a more positive note, the MMO says the comeback of Iran as an import market and a more competitive euro have the potential to help arrest the current market downturn from a European perspective.
European dairy exports
According to the MMO, EU dairy exports for 2015 performed well in volume terms, albeit at reduced prices, despite reduced global demand for dairy. Chinese dairy imports have been improving steadily since last summer and continue to show positive signs.
Increased demand for EU butter exports in 2015 from the US, Japan, Egypt and Mexico have helped offset some of the volumes of butter no longer sent to the Russian market since the food export embargo. Similarly, the Russian market is closed for European cheese exports but increased shipments of cheese to Japan, the US and South Korea have helped mitigate this somewhat.
Stock levels
European stocks of skimmed milk powder (SMP) are above normal according to the MMO and will continue to weigh on market prices.
Butter stocks are closer to normal, reflecting the greater resilience in butter prices and strong export demand from the US. Dairy product prices will continue to suffer from downward pressure with the increase in EU milk production expected to continue, particularly in northern Europe.
EU milk production has increased by 2.2% in the first 11 months of 2015, with the largest increases in terms of milk volumes coming from Ireland, the Netherlands and Germany. On the world stage, US milk production for the first 11 months of 2015 was 1.3% ahead of the same period in 2014.
US production is forecast to increase by a further 1.2% in 2016, while in New Zealand it is believed milk production will fall off by as much as 5% in the coming 12 months.