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January 1997
SUMMARY
Cow milk production in selected countries for 1996 is estimated at
84.7 million tons, unchanged from 1995. Significant production
declines in Russia and Ukraine and small declines in the United
States and European Union (EU) were just offset by increases in the
South America, Oceania, and India.
For 1997, cow milk production is forecast up slightly to 386.9
million tons. South America, Oceania, and India are expected to
show significant increases.
Milk cow numbers continued trending downward in most countries
during 1996, to 133.9 million head, but rising output per-cow
maintained milk production at a relatively stable level. Further
declines in cow numbers are forecast for 1997 but higher per cow
yields due to improved genetics and better management are expected
to facilitate an increase in milk production.
For the major dairy products, only cheese production at 11.9
million tons showed an increase in 1996. With increased cheese
output and no increase in milk production, output of butter,
estimated at 5.2 million tons, was unchanged in 1996 while output
of NDM, estimated at 3.0 million tons, was down. For 1997, cheese
production is expected to gain another 2 percent, butter output
will gain 1 percent while output of NDM declines about 2 percent.
PRODUCTION
North America: Milk production in the United States for 1996 is
estimated at 70.1 million tons, down almost 1 percent from 1995.
Growth in milk-per-cow was slowed by concerns about high feed
prices, tight feed supplies, and uncertain prospects regarding the
use of Bovine somatotropin (bST), and residual effects from the hot
summer of 1995. With these concerns, the 1-percent decline in cow
numbers was not offset by rising yields as is normally the case.
Despite the downturn in output in 1996, U.S. milk output is
forecast to increase less that 1 percent in 1997, to 70.7 million
tons. Feed prices have moderated but growth in output-per-cow is
expected to remain low. Also during the first month of 1997,
California, Oregon, Washington, and Idaho were hit by severe floods
while the upper Mid-West was hurt by severe winter conditions.
According to current prospects, U.S. production of dairy products
in 1997 will again be dominated by cheese, projected to gain 3
percent, while butter continues to decline.
Canadian milk production continued its upward surge, during the
1995/96 (Aug./July) Canadian dairy year and actual output of
manufacturing milk was 7 percent over the Market Share Quota (MSQ)
for processing milk. Apparently many producers were quite
optimistic about the potential benefits of the new dairy program
which eliminated the levies for over-quota production. Instead of
levies, the new policy calls for over-quota milk to be priced
relative to either international prices or U.S. prices for dairy
products. With both U.S. and international prices down from summer
highs, over-quota production now looks less attractive to Canadian
producers. Current estimates put 1996 Canadian milk production at
8.0 million tons, up 1 percent from 1995 but, in 1997 output may
fall back to the 1995 level. Cow numbers are expected to remain at
the 1.28 million head level.
Canada's output of dairy products may ease somewhat is 1997, if
milk production declines as expected. With relatively stronger
demand, cheese production is expected to remain about the same as
in 1996, while output of butter and NDM will decline somewhat.
In Mexico, milk production is estimated at 11.5 million tons in
1996, up 3 percent from 1995. Production is forecast to increase
again in 1997. The end of the drought in the Northern States plus
higher productivity in larger dairies, particularly dairy
cooperatives, enabled the production increase despite rising costs.
Dairy cow numbers were stable in 1996 but may increase in 1997 with
the improved feed supplies in the Northern States.
South America: Milk production in Brazil continued its rapid
expansion, rising to 19.8 million tons in 1996. The increase
reflects gains in per-cow productivity due to genetic improvements,
good weather in most regions, favorable returns to producers and
increased dairy production from non-traditional milk-producing
areas. Production is projected to continue its pattern of rapid
growth in 1997.
The potential to improve milk production in Brazil is great since
only 10 percent of current output utilizes modern technology
(specialized dairy breeds, milking machines, adequate nutrition,
and herd management). Producers are increasing the use of modern
inputs following the Government's decontrol of milk prices. If the
current economic stabilization continues for the next two to three
years, the dairy sector may be able to double its use of modern
inputs. This will be necessary if, as some predict, Brazil needs
to increase milk production substantially to meet consumer demand
for milk and dairy products.
Argentina's 1996 milk production is estimated at 8.9 million tons,
up 6 percent from 1995. Output is projected to increase again in
1997, to a record 9.5 million tons. A stable economy, a free dairy
sector, and increased domestic consumption in the past 5 years have
made the sector one of the most profitable at both the farm and
processor levels. The rapid growth is attracting large investment
in the sector, mainly from local companies already in the business,
but also from new foreign companies. The dairy industry, which
currently boasts the highest per-cow yields in South America, is
expected to become even more efficient as investment increases.
Argentine farmers continue to adopt new technology and tools to
improve returns. The use of artificial insemination continues to
grow, as does the importation of foreign genetics, mainly semen.
Argentina markets its exports as "natural" products and does not
permit the use of BST.
European Union (EU): Overall milk production was down slightly in
1996 and another small decline is projected for 1997. Under the EU
quota system, "in-quota" milk production is very profitable with
the result that most producers try very hard not to under produce.
As a result, In years when conditions are favorable for milk
production such as 1995, national quotas are often exceeded by
significant quantities.
German milk output in 1996 is estimated at 28.9 million tons, up 1
percent from 1995. Dairy farmers in Germany stepped up production
in an effort to profit from the relatively low penalties imposed on
over-quota production in 1995. Regional imbalances allowed many
farmers to produce well over their quota in 1995 without exceeding
the national quota.
French cow milk production in 1996 is estimated at 25.4 million
tons, slightly below 1995. Following several years of
under-utilizing its quota, France exceeded its quota in 1995/96
(April-March) and French producers are now subject to a combined
penalty equivalent to $US 84 million. Milk production in 1997 is
expected to remain at the 1996 level.
Milk production in the Netherlands in 1996 was down due to small
reduction in cow numbers. Output in 1997 is expected to stay at
the 1996 level. Within the Dutch production sector, the lower
profit margins due to reduced subsidies for dairy product exports
led to an exodus from the industry. Government sources estimate
that the number of milk producers declined by 4 percent during
1996. However, farms with 70 for more cows increased their herds
during 1996.
In the United Kingdom, the dairy sector, like much of U.K.
agriculture, is being dominated by the crisis caused by Bovine
Spongiform Encephalopathy (BSE). In the short run, some cows were
kept in production longer than expected because slaughter
facilities were running at full capacity. In the longer run, the
slaughter scheme has had the unintended effect of increasing the
dairy herd replacement rate, which with the more rapid introduction
of superior genetics and the greater production potential of young
cows may hasten structural change in the production sector.
In the EU, 1997 cheese production is expected to increase only
marginally as reduced subsidies cut export prospects. At 1.8
million tons, 1997 EU butter production is expected to be only
slightly ahead of 1996 and increased domestic consumption may take
care of that. EU production of NDM is estimated at 1.2 million
tons in 1997, approximately 3 percent below 1996 when surplus
conditions forced some intervention buying.
Eastern Europe: Poland's 1996 milk production is estimated at 11.6
million tons, up 1 percent from 1995. Faster growth is expected in
1997. Growing demand for dairy products has led to favorable
prices for producers. For the 1996/97 dairy year, minimum
procurement prices for Grade A milk were set at 0.5 zylotys ($US
0.19) per liter. The procurement price is supported by government
purchases of butter and NDM.
In Poland, increased milk production is expected to facilitate a
1997 increase In cheese production, where domestic demand is
increasing, and in output of NDM, a traditional export item.
Butter production for 1997 is expected to remain at the 1996 level.
Former Soviet Union: The impact of economic reforms in Russia has
been strongly felt in the dairy sector. Milk production continues
to decline as both herd size and per cow yields drop. Milk
production is estimated at 35.2 million tons in 1996, 10 percent
below 1995. Based on another large drop in cow numbers, a similar
decline is likely in 1997.
In contrast to the national situation, some Russian dairy companies
are successfully restructuring and competing and, as a result, have
increased production.
For example, one Moscow company has modernized 4 plants and is
increasing production of fluid milk, yogurt, cottage cheese and
other dairy products.
Difficult economic conditions persist in Ukraine's dairy industry
as milk production continued its downward trend in 1996, dropping
to an estimated 16.7 million tons. Another decline is forecast
for 1997 with production projected at 16.5 million tons.
In both Russia and Ukraine, limited demand for fresh milk is
expected to help maintain 1997 output of dairy products at the 1996
level.
Asia: India's 1996 cow milk production is estimated at a record
33.5 million tons, up 3 percent from 1995. An additional 3-percent
increase is projected for 1997 which would bring production to an
all-time high of 34.5 million tons. Increased competition between
the cooperative and private sector dairies for fluid milk is
driving up producer prices. In addition to increasing their herds,
this is encouraging farmers to increase the quantity and quality of
feed given to animals and to adopt better animal husbandry
practices.
Japan's 1996 milk production is estimated at 8.7 million tons
representing full recovery to the 1993 level. Two summers of
record-breaking heat led to the 2-year decline. Demand for both
fresh milk and processed dairy products is growing strongly. Also,
the 1996 E-coli outbreak which hurt beef consumption appears to
have provided an additional boost to demand for dairy products.
Revised statistics for China show milk production is likely to
continue its long-term upward trend. Production in 1996 is
estimated at 6.2 million tons, up 8 percent from 1995. A further
increase, to 6.7 million tons, is projected in 1997. The upward
trend resumed after a period of stagnation which began in 1993
following free market reforms.
In 1994, market controls were partially reinstated and subsidies
began to flow again to the dairy sector. This includes favorable
procurement prices, reported to average RMB2.1/kg ($US 253 per
metric ton). Some regional procurement prices are significantly
higher.
Oceania: New Zealand milk output in 1996/97 (June/May) is expected
to total 11.0 million tons, an increase of 6 percent over last
year's record output. Approximately half the increase is due to an
increase in cow numbers while the other half is due to improved
productivity. With the sheep and beef sectors depressed, dairying
represents the most profitable alternative use for most
agricultural land in New Zealand. Sheep and beef farms continue
to be converted to dairy and an the same time, existing farms are
adding to their herds. Thus far, this season has been
characterized by ample to excessive rainfall.
Within New Zealand, dairy industry analysts are expressing concern
about the increasing cost structure of dairying. As payouts from
the New Zealand Dairy Board increase, land costs have risen at the
same time, threatening New Zealand's low-cost pasture based
structure. In addition, producers are using supplemental feeds
and other high-priced inputs which also tend to increase production
costs.
To keep costs down, producers are being urged to focus on
fertilizer use and better pasture management to increase milk
output rather than using grain and other high-priced inputs to
boost production.
Australia's 1996/97 (July/June) milk production is expected to
total 9.4 million tons, 4 percent above last year's record. Nearly
all the increase is due to increased herd numbers as producers add
to their milk herds in response to generally favorable milk prices.
Most of the increased production is expected to occur In the
Eastern States, particularly Victoria and Tasmania where a larger
share of the milk is used for manufacturing purposes. The 1996/97
season started with ample supples of soil moisture. In addition,
lower grain prices are expected to make supplemental feeding more
feasible.
In both countries, improved supplies of milk will boost output of
most dairy products. New Zealand cheese production is expected to
expand 10 percent to 260,000 tons in 1996/97. Expanded cheese
making capacity will help New Zealand export relatively more of its
milk as cheese. Cheese production in Australia is expected to grow
4 percent to 278,000 tons. Output of butter is expected to
expand in the 4 to 5 percent range in each country. However,
current low international butter prices, if they continue, may
cause additional switching to other products where feasible. In
the milk powder market, both countries are forecast to funnel
relatively more milk into whole milk powder production (WMP)
compared to production of NDM.
SUMMARY:
International trade flows for the major dairy products weakened
somewhat in 1996 probably as a result of the high 1995 prices.
Total butter exports in 1996 are estimated at 533,000 tons, 12
percent below 1995 because of lower shipments by both the U.S. and
the EU. In both, operation of export subsidy programs plays an
important role in determining the actual export level. Total
1997 butter exports are forecast to rise to 572,000 tons with
increased shipments from Oceania and Argentina. Selected country
butter imports for both 1996 and 1997 are expected to remain near
the 1995 level.
Total cheese exports in 1996 are estimated at 967,000 tons, only
slightly above 1995. Rapid growth is expected in 1997 with
increased exports from Argentina, New Zealand, and Australia which
more than offset a downturn in EU exports. Brazilian imports were
up sharply in 1995 as domestic importers raced to beat an expected
tariff increase. However dairy product imports returned to normal
levels in 1996. The Brazilian change was enough to pull total
imports down in 1996. Renewed import growth is expected in 1997.
Preliminary trade data for NDM indicate a sharp drop in 1996
exports of NDM, pushing total exports down to 810,000 tons in 1996.
The United States, with slower DEIP activity, and the EU with
limited supplies, account for most of the decline at the aggregate
level. Aggregate exports of NDM are expected to increase by over
100,000 tons in 1997, largely due to increased exports from
Oceania and the United States.
For the covered countries, 1996 imports of NDM were down over 10
percent due to reductions by Mexico and Brazil. An import increase
of approximately 5 percent is forecast for 1997. Trade in WMP
turned downward in 1996, but 1997 may see renewed growth. Reduced
exports by the United States, the EU, and Oceania accounted for the
1996 export downturn. Reduced Latin American imports caused the
downturn in aggregate imports of WMP.
UNITED STATES:
During 1996, U.S. exports of major dairy products were sharply
reduced due to limited supplies and reduced activity under the
Dairy Export Incentive Program (DEIP) particularly during the
first three-quarters of the calender year. With the stronger world
prices, and the onset of Uruguay Round limitations, butterfat
export incentives were not used at all during 1996 while activity
for cheese, NDM, and WMP was greatly reduced. For 1997, falling
milk prices have indicated a need to step up DEIP activity
including reactivation of the butterfat program. (For additional
information on U.S. dairy exports, see the special article entitled
"Exports of Dairy Products from the United States".)
CANADA :
Exports of dairy products were sharply higher in 1996, aided, at
least in part, by the new Special Classes program which enables
processor/exporters to buy milk at world market prices. Exports of
NDM, traditionally Canada's major dairy export, were up again in
1996 after making a big jump in 1995. During 1996 exports of
butter jumped from 6,000 to 19,000 tons, while cheese exports
declined modestly. Exports of most products are expected to be
stable or decline in 1997, consistent with smaller milk supplies.
AUSTRALIA:
Prices and Policy The major determinant of price paid for
Australia's manufacturing milk is the international market. World
prices for dairy products were generally favorable during early
1995/96 but declined later in the year. The favorable early year
prices were sufficient to give producers a sharp boost in their
returns. The Australian Bureau of Agricultural and Resource
Economics (ABARE) forecasts that manufacturing milk prices for
1996/97 will decline due to lower world prices for dairy products.
Returns to Australian Milk Producers
($A/liter)
Year Manu. Milk Fresh Milk
1992/93 0.23 0.43
1993/94 0.21 0.44
1994/95 0.20 0.48
1995/96 0.26 0.50
1996/97f 0.25 0.51
In most Australian dairy producing regions the old method of
valuing milk in terms of its milk fat content has been replaced by
a formula based on three components: milk fat, protein, and volume.
The new formula recognizes the change in consumer preference toward
lower fat products. This move to a compositional method of payment
will provide dairy farmers with clearer signals of the economic
value of their milk and will help them adjust their breeding and
management techniques to maximize industry returns. Payments from
processors to individual farmers also vary marginally as firms
operate a range of incentive/penalty payments relating to milk
quality, sales volume, and out-of-season supplies.
Cheese exports rose 5 percent during 1995/96. Australian cheese
exports have increased steadily from 52,375 tons in 1990 to 116,061
tons in 1995/96. The majority of the increase in exports has gone
to Asian markets, with Japan easily the most important. Exports to
Saudi Arabia grew to 12,000 tons after 3 years of imports at the
10,000 tons level. Exports to the United States fell further
during 1995/96 after growing steadily in recent years.
NDM export sales declined by 20,000 tons in 1995/96. Despite the
over-all downturn, sales followed the usual pattern with the Asian
market taking the vast majority of exports. The Philippines,
Japan, Malaysia, Thailand, Singapore, and Indonesia are the major
market for Australian exports of NDM.
Imports are becoming a factor in Australia due to higher domestic
prices and a trade agreement with New Zealand. Cheese imports from
New Zealand increased from less than 8,000 tons in 1988/89 to
around 22,000 tons in 1995/96. Most cheese imports from New
Zealand are used in the food service and processing industries.
Imports of New Zealand butter, while still at a low level, are
mainly for the bulk trade.
NEW ZEALAND:
Overview: The New Zealand dairy industry exported 0.9 million tons
of dairy products in 1995/96 (June/May), down from 1.07 million
tons in 1994/95. All exports of dairy products manufactured in New
Zealand are carried out by the New Zealand Dairy Board, which was
established and given monopoly powers by the Dairy Board Act.
In 1996/97, increasing milk production will see output of
manufactured products rise across nearly all categories. Improved
market opportunities are expected to continue to boost
New Zealand's cheese butter, and milk powder exports. Relative
price changes have shifted emphasis so that cheese exports are
favored. The United States remains the largest export market for
casein and caseinates produced in New Zealand, even though Japan
is growing in importance as a casein importer.
Prices: Current forecasts from the Dairy Board indicate that the
1996/97 payout will range from N.Z.$3.15 and N.Z.$3.20 per kg of
milksolids, down from N.Z.$3.60 in 1995/96. The lower payout
reflects lower international dairy product prices and continued
appreciation of the NZ dollar. For a typical dairy farmer, the
lower payout translates to an income loss of NZ$20,000
(approximately $US 14,000).
NZ DAIRY PRICES AT THE FARMGATE
(per kilogram of milkfat)
Year $NZ Ex. Rate $US
90/91 4.22 0.60 2.53
91/92 5.84 0.55 3.24
92/93 6.38 0.53 3.40
93/94 5.80 0.56 3.27
94/95 5.81 0.63 3.66
95/96 6.81 0.67 4.56
96/97f 6.20 0.70 4.34
f=forecast
.
Trade Highlights: In comparison to 1994/95 exports, the main
market changes in 1995/96 included: (a) Increases in the U.K.,
Russian, and Iranian butter markets; shipments to Iran more than
doubled. (b) Increased shipments of cheese to Japan, Australia and
Russia while shipments to the United States declined;
© The Japanese, Malaysian and Indonesian markets for NDM were up,
while other Asian markets such as Taiwan and the Philippines were
down; (d) Exports of WMP to Malaysia, Mexico, and Sri Lanka were
down though they remained the leading markets. Exports to
Venezuela declined from 33,000 to 19,000 tons. and (e) Casein
exports fell just over 10 percent with most export markets down.
EUROPEAN UNION (EU):
In recognition of the improved world markets for dairy products and
of its obligations under the Uruguay Round, the EU reduced its
export subsidies several times in 1995; however, with changing
world markets and some stock buildup some subsidy increases
occurred in 1996. In addition, since GATT imposed limitations on
cheese subsidies are a relatively more serious problem than for
butter or powder, the EU selectively reduced the subsidies for some
destinations, such as other European countries, where EU cheese is
competitively priced without subsidy. Currently, the EU system
allows subsidies to be prefixed for up to 4 months for cheese and
up to 5 months for butterfat and milk powders. Prevailing subsidy
rates to third countries at the beginning of 1997 are as follows:
EU SUBSIDIES PER METRIC TON
Product ECU $US
NDM 630 788
WMP 1080 1350
Butter 1900 2375
Butteroil 2400 2624
Cheddar 1060 1325
* 1 ECU = $US 1.25
With EU milk production quite stable due to production quotas,
production and exports of the major dairy products tend to reflect
relative market conditions. During 1996, exports of cheese and
butter remained at the 1995 level; however both NDM and WMP exports
dropped from the high 1995 level when favorable markets allowed
significant stock reductions.
In 1997, EU cheese exports are expected to decline again as
subsidies are further reduced in line with GATT commitments.
Export levels for butter, NDM and WMP are forecast to show little
change from 1996.
MEXICO:
Mexico continues to be far from meeting overall dairy demand,
although some larger, modern dairies effectively compete against
imported products. As a result, Mexico likely will continue to be
a large importer of NDM, to a lesser extent WMP, and other dairy
products. However, NDM and WMP imports in 1996 were lower than in
1995 because of higher international prices and the loss of
consumer purchasing power due to devaluation of the peso.
According to some industry sources, 1996 demand by private
processors was partially covered by milk substitutes such as whey
protein concentrate, casein, lactose, and other dairy products as
well as vegetable oils. NDM production and imports are projected
to remain fairly stable for 1997; however some stock drawdown may
facilitate an increase in consumption.
Under the North America Free Trade Agreement (NAFTA), Mexico is
obligated to provide duty-free access for 42,436 tons of U.S. milk
powder in calendar year 1996. This duty-free quota rises 3 percent
annually. The Government normal allocates the entire duty free
import quota for NDM to CONASUPO, (a government buying agency)
except for minimal amounts directly allocated to processors in
border areas. CONASUPO continues to arrange NDM imports through
direct purchases from suppliers without using public tenders.
CONASUPO will probably remain the sole significant NDM importer
during 1997.
The Mexican market for imported cheese has grown rapidly in recent
years, from 3 percent to 8 percent of the total domestic cheese
market and over 30 percent of the market for hard and semi-hard
cheeses. Another sharp increase in cheese imports is expected in
1997. Barriers to cheese imports are dropping rapidly under NAFTA
and by the year 2003, U.S. produced cheese should enter Mexico
duty-free compared to a rate of 40 percent for cheese from Europe
or Oceania.
BRAZIL:
Imports of dairy products were at record high levels in 1995
because the local currency strengthened against the dollar making
imported products more affordable, plus importers rushed to beat a
tariff increase. Imports of most dairy products were down in 1996
and are expected to be down again in 1997. The declines are due to
the sharp increase in domestic production which will facilitate
consumption increases at the same time as imports are declining.
Brazil's NDM consumption in 1997 is expected to continue rising due
to economic growth and to the demand from states' social programs.
Consumer demand for low-fat dairy products has also increased,
although it represents a small portion of total demand. In
contrast to butter and cheese, increased imports of NDM will be
needed in 1997 to meet the expected growth in consumption.
RUSSIA:
Dairy products in Russia remain a significant part of the Russian's
diet, although calculations based on official statistics show that
per capita consumption of dairy products (in milk equivalent terms)
decreased from 347 kilograms in 1991 to 252 kilograms in 1995.
Variations in consumption of milk and products by regions are very
significant. The lowest level of consumption is in the Far East and
the Northern regions (150-160 kilograms per year), and the highest
level is in West Siberia -- in Omsk consumption of milk and dairy
products was 375 kilograms.
Domestically produced dairy products (especially whole milk
products) are often unpasteurized and must be consumed within a
short period of time because they can not be stored for long
periods for human consumption. The short expiration period is a
big problem in marketing Russian dairy products. Cold storage
facilities are primarily operated by the quasi-state organization
Rosmyasmoltorg - the former state ministry of the meat and dairy
processing industry. The company owns a network of cold storage
facilities and markets about 20-50 percent of the dairy products
sold in Russia.
Prices: In the period from September 1995 through September 1996,
the retail price of dairy products stabilized in Russia. The
average retail price of a kilo of milk increased more slowly, from
$US 0.52 in September 1995 to $US 0.56 in September 1996, the
average retail price of butter decreased in the same period from
$US 4.19 to $US 3.90, and the average retail price of cheese
decreased from $4.95 to $4.73 per kilogram.
Overall Trade Trends: Russia remains a net importer of dairy
products, and the value of imports increased in 1995. In 1995,
imports of dairy products increased to $796 million (almost 60
percent higher than in 1994), while exports decreased to $74
million (9 percent less than in 1994).
The Ukraine, owing to its transparent borders with Russia and the
tariff exemptions on imports from the Commonwealth of Independent
States (CIS countries) in 1995 became the export leader among the
suppliers of milk, cream, and butter to Russia. The Netherlands,
Germany and New Zealand are Russia's largest non-CIS suppliers of
milk, cream, butter, and cheese.
Trade Policy: In spite of higher import tariffs, the 1994
imposition of a value added tax (VAT) on imported products, and the
new per kilo minimum tariff on butter, Russian producers are still
facing strong competition from imports of less expensive and
sometimes higher quality products.
The main reason is the high cost of production of domestic dairy
products. However, the efforts of protectionism by the Russian
Government are constrained by the Russia's plans to join the World
Trade Organization.
Also, consumers in the large metropolitan areas are demanding high
quality, processed, packaged dairy products, much of which the
domestic industry cannot supply.
During 1996, import duties for dairy products were unchanged with
one exception: the import duty for butter was changed to include a
minimum levy of 0.3 ECU per kilogram. There are no export duties
for milk products shipped from Russia.
JAPAN:
Cheese consumption maintained an upward trend in 1996, with
estimated annual total consumption reaching 190,000 tons, up 4
percent from 1995. The gain was mainly due to increased imports
since domestic production of both natural and processed cheese did
not rise above the previous year's level of 30,000 tons. Smaller
individually packed items are said to be the most popular in the
marketplace, regardless of whether domestic or imported, natural or
processed.
Japan's total imports of cheese for 1996 are estimated at 160,000
tons, up 3,000 tons from 1995. Interim trade data for January -
September 1996 show that total cheese imports rose 11 percent from
the year earlier period with cheese imports from Australia up 11
percent, New Zealand up 4 percent and Denmark down about 4 percent.
Shipments from the United States, though much smaller than the 3
leaders, were up 65 percent for the period.
The overall growth is mainly attributed to a combination of factors
such as real consumption increases and some switching from meat
products to dairy products. Imports from the United States are up,
largely owing to increases in both fresh cheeses (cream cheese) and
grated (pizza) cheese categories.
SUMMARY:
After a steady decline for most of 1996, world dairy prices appear
to have stabilized. In fact, there are even some signs of
underlying strength particularly in the milk powder and cheese
markets. Butter prices, which experienced the sharpest declines
with prices falling from a peak of around $2,500/ton in 1995 to a
low point of around $1,500/ton in late 1996, also appear to be
stabilizing. In the EU, butter export prices have recently
rebounded to around $1,700/ton. These may be short-lived trends
but are nevertheless an improvement from earlier predictions which
suggested a dim outlook for dairy markets during 1997.
The historical price chart suggests that perhaps markets (at least
for powder and cheese) are settling at new price ranges. For
example, nonfat dry milk traded in the range of around $500/ton to
$1,000/ton in the period 1979-1987, then around the $1,500/ton mark
from 1988-1994 before breaching the $2,000/ton level in 1995.
Since then, while the price has dropped, it now appears to have
stabilized in the $1,900/ton to $2,000/ton range. Since butter has
closely followed the price of nonfat dry milk, it is not
inconceivable that butter prices could hover around the $1,500/ton
level for the rest of the year. The case for cheese is more
persuasive, since in the period from 1986 prices have exhibited an
upward trend and since 1994 have remained above the $2,000/ton
level. This implies that during the past few years import demand
for cheese, primarily cheddar cheese, has in general exceeded
supply, thus pulling prices up. Further, in contrast to other
dairy commodities cheese prices have remained fairly resilient with
prices trading in the $2,300-$2,600/ton range during 1996.
NONFAT DRY MILK:
NonFat Dry Milk (NDM) prices are currently trading in the
$1,875-$1,950/ton range and, for the near future, are expected to
remain in that range. A key factor, however, will be the level of
import demand in the next few months, since the availability of
exportable supplies from major exporters is limited. In fact, the
EU is the only supplier of NDM that can currently meet substantial
purchasing orders on world markets. Consequently, even a moderate
increase in demand could pressure prices upwards. For example, the
December 1996 EU sale of some 17,000 ton of NDM to Mexico at prices
ranging from $1,995-$2,010/ton C&F for Dec.-Feb. delivery was
sufficient to cause EU domestic prices to climb. More upward
pressure could occur if the unconfirmed report of an additional
47,000-ton sale proves correct.
As a result of the tightness in NDM markets, it appears any price
advantage gained by EU exporters as a consequence of the recent
surge in the value of the dollar is being negated whenever
substantial sales are being concluded. This is particularly
evident for nearby delivery sales because EU milk production is at
its seasonal low and dairy producers in a number of EU countries
are cutting back production in order to remain within their
production quotas. The harsh winter weather has also played a
role, albeit to a lesser degree. For deferred deliveries, EU
exporters will probably be willing to sell short and aggressively
in expectation of the spring flush. Consequently, the action of
buyers such as Mexico and Algeria could have a substantial bearing
on prices particularly if they seek nearby delivery. Nevertheless,
NDM prices will be hard pressed to climb substantially since the EU
maintains substantial intervention stocks.
With respect to major purchasers, indications are that Algeria is
currently seeking to purchase some 12,000 ton of powder, although,
Algeria is reported to be currently taking delivery of some 20,000 ton of
Polish NDM which should cover its nearby needs. Meanwhile,
Mexico, in a departure from past purchasing patterns when it bought
the bulk of its needs between October and January, appears to be
buying smaller quantities on a more regular basis. Consequently,
many traders expect that Mexico will purchase further quantities
for delivery during the second quarter of 1997. Most of this
product will probably be of EU origin although smaller quantities may
be sourced from Canada and the United States. The only other major
purchaser of powder is Japan, which is reportedly tendering for some
15,000 tons which will likely be covered by purchases from
Australia and New Zealand.
With respect to New Zealand and Australia, it appears that they
have committed the majority of their exportable supplies to the
Asian region and are holding only residual unsold balances for
premium markets. Based on estimated prices it appears that the
Oceania countries marketed their product at well below EU prices in
order to capture the Asian markets. This is evident since Oceania
prices were at their most aggressive during the August and
September period when they traditionally market the bulk of their
initial and anticipated production. Since the EU export prices are
dependent on the fixed level of restitutions they are fairly
transparent and predictable and thus easily undercut.
In contrast U. S. DEIP prices are tailored to meet prices
prevailing in different markets of the world and thus may pose a
greater competitive threat. However, this threat is somewhat
exaggerated since, as the chart demonstrates, the share of the
world NDM export market is clearly dominated by Australia and the
New Zealand Dairy Board (NZDB). Given that the Uruguay Round
spells out the limits for subsidies of U.S. powder, it seems that
objections to the DEIP are rooted mainly in the limited price
competition that DEIP offers. This is particularly evident when
some major purchasing clients of the NZDB are also its major
competitors of consumer branded products in many Asian countries.
Prospects for exports of large volumes of NDM under the DEIP appear
limited since the future availability of domestic supplies is
difficult to gauge. Certainly, the wide price fluctuations
experienced during 1996 have currently made U.S. suppliers
extremely reluctant to commit substantial volumes at fixed prices.
Since the virtual elimination of CCC stocks, domestic markets have
become increasingly volatile and unpredictable.
WHOLE MILK POWDER:
Prices for WMP are currently estimated to be trading at a premium
to NDM with prices ranging from $1,925 to $2,000/ton. The EU last
increased restitutions for WMP in September 1996 and given that
prices have remained virtually unchanged since then this suggests
that WMP markets are fairly well balanced. Despite the recent
strength of the dollar there has been some firming of WMP prices
which may have been fed by unconfirmed reports of heavy purchases
by Iraq and tenders from Algeria. The outlook for WMP prices is
similar to NDM but prices are likely to be more resilient should
markets ease.
BUTTER:
The plunge in butter prices experienced during 1996 appears to have
ended. In fact, the recent gain in EU export prices points to a
modest recovery . EU prices, after sliding to around $1,500/ton
have recently climbed to around $1,700/ton. Two factors seem to
account for this upward movement. First, Russian demand has been
fairly strong since November 1996 and some sources report that some
30,000 tons of EU butter has already been sold or shipped. Second,
internal consumption appears to have increased as a result of lower
prices and the EU's internal subsidy scheme for food manufacturing.
This is supported by the chart tracking EU private stocks which
highlights the rapid drawdown in stocks relative to either the
average of 1991-1995 or last year. Admittedly, this probably
reflects exports but also implies increased domestic usage.
Since intervention stocks only total around 40,000 tons, it seems
likely that there will be further marginal strengthening of
internal and export prices through early spring. A key
determinant, however, will be the pattern of Russian purchases.
At the other end of the scale, Australian exporters, which are
expected to increase exports of butter by 25 percent in the current
1996/97 season, aggressively priced butter early in the season in
order to keep inventories down.
It now appears that the volume being offered has declined
substantially. Currently, Oceania suppliers are reported to be
offering butter in the range of $1,300-$1,375/ton FOB Oceania and
export prices appear steady.
Like NDM, the outlook for U.S. exports of butter under DEIP will be
largely dependent on domestic availability. The recent gyrations
of U.S. butter prices which ranged from around $3,375/metric ton
down to $1,605/ton and back up to $2,010/ton in the space of three
months will undoubtedly present a hurdle for prospective exporters
for the same reasons cited for NDM. If exporters have difficulty
in sourcing supplies of butter during the current period,
traditionally the surplus season, then the role of the United
States as an exporter of butter for the near future will probably
be limited.
CHEESE:
Although Cheddar cheese prices have been somewhat erratic at the
top end of the price range, prices have remained fairly stable for
most of 1996. This is probably due to the strong level of import
demand on world markets and the impact of the Uruguay Round
limitations of subsidized exports of cheese from the EU. In an
effort to remain within the confines of these limitations the EU
reduced export restitutions (to 3rd countries) by 20 percent during
1996 and zeroed out subsidies for some minor markets. Strong
internal demand as well as continued pressure to reduce the level
of subsidized exports will continue to lend support to EU export
prices and world markets.
Prior to the breakup of the USSR, the three Baltic countries,
Latvia, Lithuania, and Estonia, were important suppliers of dairy
products to Russia, particularly the cities of Moscow and St.
Petersburg. Following their independence, new economic relations
with Russia plus unfavorable economic conditions in the region sent
the dairy sectors of each of these 3 countries into a steep
decline. Reports from the region indicate that 1994-95 probably
represented the bottom and conditions have started to improve for
both producers and consumers. With improving prospects for
production, the Baltic region is looking to international markets,
particularly nearby EU markets as an outlet for dairy product
exports.
The Baltic Free Trade Area (FTA) for agricultural commodities went
into effect on January 1, 1997. If the FTA is implemented as
planned, it will expose less competitive agricultural sectors to
competition from the other 2 countries.
In the case of dairy, this means Latvia's relatively less
competitive dairy sector may suffer in the face of competition from
Estonia and Lithuania. In Estonia the total volume of processed
raw milk is 1.5 times larger, and in Lithuania 3 times larger, than
in Latvia. Raw milk purchase prices are lowest in Lithuania due to
government subsidies and as a result that country has the cheapest
dairy products.
The Estonia dairy sector is highly industrialized, and Estonia has
the lowest priced electrical power in the Baltics--two factors
which make Estonian dairy products very competitive despite the
small production base. The resulting competition will undoubtedly
put downward pressure on future dairy product prices.
The following table details the decline that took place in cow
numbers and milk production since 1990. Similar declines
characteried other aspects of the dairy sector in each of the three
countries. It should be noted that despite the sharp downturn in
production, each of the 3 countries is till self sufficient and has
product available for export.
Based on a report from the U.S. Agricultural Attache in Stockholm,
the following data present a statistical overview of the dairy
sector in each of the 3 countries. The Stockholm report also
presents some additional detail for Latvia.
Additional Details on the Latvian Dairy Sector
After the decline in dairy cattle numbers and milk production
commencing in 1991, 1995 is viewed as the low point in the sector's
development; and 1996 production levels reflect a turnaround in
output.
Official production data show January-September 1996, milk
production totaled 721,400 tons, slightly below the comparable 1995
period. However, third quarter milk sales to processors totaled
over 144,000 tons, an increase of 22 percent compared to 1995.
Farmgate milk prices are well above 1995 levels, although the
margins have narrowed recently.
One reason for the increased optimism in the Latvian dairy industry
is the EU/Latvian FTA which sets EU quotas for Latvian exports and
envisions them increasing by 5 percent annually. For 1996/97 the
quotas were set at 2,363 tons for skim milk powder, 1,313 for
butter and 1,103 for cheese.
In 1996, butter exports to the EU helped stabilize the Latvian
butter market. Through mid October 1996, Latvia was able to fulfill
its export quota for butter at the relatively attractive price of
$2,170 to $2,200 per ton. While export prices did not cover butter
production costs, they at least did not worsen the financial
situation of dairies. In the summer 1996, butter prices were
$1,700 per ton in the Russian market -- levels that would have only
contributed to losses for Latvian dairies that export butter.
With the EU quota filled, prospects for Latvian butter exports
during the next few months are rather pessimistic. Returns of
approximately $2000 per ton are needed to avoid losses while the
international price is currently well below that level.
Similar to the situation for butter, the fact that Latvia has
fulfilled its EU export quotas, means there is little opportunity
for additional cheese exports. This is particularly true since the
EU market requires mainly Cheddar cheese.
Final Bureau of the Census data are expected to show that the value of U.S. dairy product exports declined in 1996. Total value was down 7 percent for the first 11 months of 1996 compared to the same period of 1995. On a product basis, most of the decline is due to reduced shipments of milk powders and butterfats, product categories where the Dairy Export Incentive Program (DEIP) has a major impact. Shipments of yogurts and similar products are also expected to be sharply lower with that decline caused by reduced trade with Mexico where local production capacity has been improved. On the plus side, 1996 exports of fluid milk and cream, whey products and other dairy products are running significantly better than in 1995. Improving economic conditions in Mexico, the primary market, have boosted the fluid milk complex. However, 1996 shipments are still well below exports in 1994, the last full year before peso devaluation. The category ‘other dairy products' consists mainly of lactose and of ready-mix food preparations with a high dairy product content. Analysis of food preparations exports is beyond the scope of this article. Tables on the destination of U.S. exports of whey powder, lactose, and whey protein concentrate are presented below. SUPPLEMENTAL INFORMATION ON IMPORTS In an effort to provide additional information regarding international demand for dairy products, selected import data from the Food and Agricultural Organization (FAO) are included. Only the major dairy products for countries not included in this circular were included in these tables. As a note of caution, FAO procedures for collecting and maintaining its database make it likely that some of FAO's data may differ significantly from data maintained by USDA.