The global dairy market downturn has hurt processors and farmers around the world. U.S. dairy exports declined in 2015, ending a streak of five straight years of expansion.
At The U.S. Dairy Export Council, we are frequently asked two questions. What’s causing this market downturn? When will it end?
Our president, Tom Suber, recently gave a presentation that shed light on the situation with these seven revealing charts:
2. Still dealing with the China “bubble.” In late summer 2014, demand growth abruptly evaporated. A boom in Chinese purchasing that began in 2013 proved to be a bubble.
3. Russia ban of EU creates ripple effect. The Russian embargo shut off a market for 20,000 tons of cheese and 2,500 tons of butterfat per month for EU dairy suppliers. EU suppliers responded by shifting their product mix and targeting other markets, increasing competition.
4. Buyers stocked up. Dairy buyers have good coverage for the months ahead, wth plenty of product in the pipeline. There’s also concern that several major importing countries dependent on oil revenue—Algeria and Venezuela in particular—have pared back purchases in recent months.
5. Global production not slowing fast enough. Heavy inventories on both the buy and sell side of the supply chain, as well as EU government stocks, will limit recovery prospects in the months ahead.
6. EU increases supply after quota limits lifted. After 30 years, EU quota limits were lifted in March 2015. Consequently, EU milk production has increased significantly, as the red sections of chart below shows.
7. Strongest U.S. dollar in 13 years. The dollar gained 11-15 percent against the currencies of our three main competitors—Australia, the EU and New Zealand—over the course of 2015. For U.S. dairy exports, that’s not exactly great news, but it’s important to keep exchange rates in perspective. Although currency plays a role in dairy trade, that role is secondary to many other factors, with supply and demand at the very top of the list.
Some good news: Long-term demand looks strong
Despite the current downturn in global dairy markets, the long-term outlook looks much better.
A recent U.S. Dairy Export Council report says the fundamentals driving long-range global dairy trade demand should remain positive through 2020.
The report, “2020 Global Demand Forecast for U.S. Dairy Exports,” is part of USDEC’s ongoing strategic planning that it conducts with Dairy Management, Inc., its primary funder through the dairy check-off.
“Unfortunately, 2016 looks as if it is going to remain about as bad as 2015 was,” said Suber. “But we are encouraged to see that long-term global dairy demand fundamentals are still in place that will again pressure available milk supplies.”
Source: US Dairy Export Council
