Since the end of 2021, global milk supplies have tightened, propelling prices for manufactured dairy commodities higher. Among the major dairy exporting countries through May, only Argentina has seen milk output grow year-over-year (+1 percent) while Australia (-6 percent), the European Union (-1 percent), New Zealand (-6 percent), and United States (-1 percent) have all seen supplies come under pressure. Going forward, global supplies will likely remain tight as hot, dry conditions in the European Union (E.U.) increase cow discomfort and weigh on output per cow.
Fluid milk
In Australia, milk production in 2022 has been revised down 4 percent from the prior forecast to 8.73 million tons and is now expected to contract 3 percent year-over-year. Expectations for 2022 milk production are being negatively impacted as dairy farmers continue to exit the business. Higher property prices are reportedly spurring some dairy farmers to exit the business altogether while others are enticed into raising beef cattle by high prices in that sector and lower labor intensity. These exits have driven milk cow numbers lower; the difficulty of finding labor has been weighing on milk yields. These factors more than offset strong milk prices and good feed and water availability. The National Dairy Farmer Survey conducted by Dairy Australia indicates that producers are more inclined to invest recent profits in on-farm improvements instead of expansion, at least in the short term.
The milk production forecast for 2022 in the European Union has been revised down 3 percent from the prior forecast and production is now expected to contract 2 percent year-over-year. Additionally, rising input costs have squeezed producer margins despite strong raw milk prices and current hot, dry conditions are expected to negatively impact forage quality and weigh on milk yields.
New Zealand milk production was tight to start 2022, declining nearly 6 percent yearover-year through May as dryness negatively impacted important production regions including Waikato and Southland. However, soil moisture has improved considerably over the past 2 months and the outlook through September2 suggests rainfall will continue to be normal to above normal, which should support some recovery in output per cow as the year progresses. Additionally, the farmgate milk price paid by Fonterra continues to be strong, with the price for the remainder of calendar year 2022 and the beginning of 2023 forecast at NZ$8.78 to NZ$10.25 per kilogram milk solids. For 2022, New Zealand milk production will be marginally below 2021 at 21.9 million tons. However, despite some supportive factors, milk production has been constrained as cow numbers have been declining.
Cheese
Australia cheese production is expected at 375,000 tons in 2022, nearly 3 percent below last year due in part to tighter milk supplies. However, processors continue to prioritize cheese over other manufactured commodities, particularly whole milk powder (WMP), leading cheese output to shrink more modestly than overall non-fluid use. This pattern of use has been the long-term trend in Australia and has been further supported this year by a widening spread between cheese and WMP prices. With COVID-related lockdowns ending and international visitors returning to Australia, cheese consumption is expected to strengthen 5 percent over 2021. Relatively large stocks will support higher consumption and exports despite lower production and lackluster import demand.
Despite falling milk deliveries, European Union cheese production is expected to rise nearly 1 percent year over year to 10.60 million tons as good export prospects and a firm domestic market cause dairy processors to continue favoring the cheese/whey stream over other dairy commodities. Furthermore, several new cheese plants producing industrial mozzarella for the food processing industry are expected to support production this year. While tighter milk supplies may increase the cost of commodity cheese and weigh on competitiveness, specialty cheeses are expected to continue being effectively marketed and should see further export gains.
Butter (Includes Butteroil/AMF)
Butter production during 2022 in New Zealand is expected at 480,000 tons, 2 percent higher than last year. Despite lower milk production, better returns for manufacturing butter and SMP will keep milk flowing to this end use at the expense of WMP. Expanding butter production is forecast to push exports up 2 percent year-over-year to 445,000 tons. The largest markets for New Zealand butter are China, the Philippines, and Australia.
European Union butter production is expected to decline for a second consecutive year on smaller milk deliveries, down 3 percent year over year to 2.07 million tons in 2022. Dairy processors directed milk away from the butter/powder stream and towards cheese/whey last year; this is expected to continue in 2022 as domestic consumption trends lower. Meanwhile, butter exports are expected to rise 2 percent year over year, reaching 270,000 tons, as strong demand in the United States more than offsets lower demand from China, Saudi Arabia, and Morocco.
Skimmed Milk Powder (SMP)
Despite lower milk production, Australia SMP production is forecast 5 percent higher at 154,000 tons. Low carry-in stocks limit the ability of the Australian dairy sector to take advantage of strong global SMP prices. Furthermore, much of the product traded in early 2022 was produced in the peak production period of the prior year.
Reflecting tighter milk supplies and lower butter output, European Union SMP production in 2022 is forecast to decline 3 percent from 2021 to 1.49 million tons. Coupled with tighter supplies, exports are also expected to come under pressure as high domestic prices weigh on EU competitiveness in the global marketplace. Volumes are forecast down 11 percent year over year to 700,000 tons. The top markets for EU SMP are China, Algeria, and Indonesia. Additionally, easing COVID-related lockdowns in China could support some improvement in shipments.
SMP production in New Zealand is forecast at 350,000 tons in 2022, up 6 percent from the previous year despite lower milk production. Strong SMP prices are expected to cause processors to prioritize SMP instead of WMP, as prices for SMP have exceeded WMP for much of the first half of 2022. Despite weakness in shipments to China through May (-35 percent), shipments to other major markets including Indonesia (+81 percent), Thailand (49 percent), and Malaysia (55 percent) have been more than enough to leave New Zealand exports for the first 5 months of 2022 6 percent higher than a year earlier.
Whole Milk Powder (WMP)
New Zealand WMP production is forecast at 1.53 million tons, more than 4 percent lower than 2021 on tighter milk supplies and pricing that favors directing milk to the SMP/butter or cheese stream. The WMP export forecast is down 9 percent year over year to 1.47 million tons on tighter supplies and lower demand from China. Through May, WMP exports are down 19 percent as lower shipments to China (-39 percent) more than offset gains to other parts of the world. As COVID-related lockdowns ease and logistics improve, it is expected that China demand will experience some recovery, though it will likely remain below 2021 levels. So far this year, China remains the top market for New Zealand WMP followed by Indonesia, Bangladesh, Thailand, and Algeria.
China WMP production is forecast to rise 4 percent in 2022, reaching 1.05 million tons, as domestic milk supplies continue to grow, and COVID-related lockdowns cause more milk to be sent to the dryer. With lower demand, rising stocks, and high global prices, imports of WMP are expected to decline 6 percent from the record levels of 2021 to 800,000 tons.
Please click the link blow to access the report.
Source: USDA
Note: This article is compiled by Antion, please indicate our source if reprint it.