An abundance of milk and sidelined buyers have set the stage for a challenging year in global dairy markets, according to the latest outlook report from the U.S. Dairy Export Council.
World dairy demand can only support milk production growth of about 1.5 percent annually from the world’s major exporters. But milk output from the EU, U.S., New Zealand, Australia and Argentina in the last half of 2017 was about twice that.
The milk surplus hit a speed bump in global dairy import demand in the fall — with China, Southeast Asia, Mexico and South Korea pulling back from the market. Sales into the Middle East/North Africa region also lagged all year.
While U.S. dairy exports were up 14 percent in value and 6 percent in volume in 2017, the world market is going to be competitive in 2018, said Alan Leavitt, USDEC vice president of communications and market analysis.
“U.S. suppliers will have to really hustle for sales,” he said.
The biggest challenge is growth in the EU’s milk supply, which is projected to be up 2 percent in the first half of 2018. European suppliers are savvy and aggressive about defending their export markets, he said.
“Supply also has become more balanced in South America and Australia, while Canada, Turkey and Iraq have become more prominent exporters on the fringes,” he said.
While New Zealand production will be flat to slightly lower in the 2017-2018 season, recent rains and good payout prices should set the stage for decent production ahead, he said.
Another challenge for the U.S. is trade policy, he said.
The U.S. needs to retain its markets in Mexico through North American Free Trade Agreement and hopefully improve market access in Canada, he said. But in the meantime, the EU is working to finalize its trade deal with Mexico, and it’s already completed deals with Canada and Japan. And New Zealand and Australia are concluding the TPP negotiations, while the U.S. sits on the sidelines, he said.
“This may not necessarily have an impact on our export performance in 2018. But as these deals get done, there’s a risk that our customers will start to look to other supply sources,” he said.
But there are also opportunities for the U.S., he said.
“Global demand continues to grow steadily, and we have our slice of the pie. Over the last eight years we’ve had about 16 percent of world trade … so as the pie grows, we’ll continue to get our share,” he said.
Relatively low dairy commodity prices should support demand growth, he said.
“We expect good demand in Mexico, China and Japan in 2018 — three of our top markets — and hopefully a bit of a recovery in the Middle East/North Africa region as oil prices improve a little,” he said.
In terms of global demand, the best performing products in 2017 were cheese, skim milk powder and whey products — the three main export categories for the U.S. — and the U.S. has ample supplies, he said.