LIVESTOCK MARKETS: Dairy markets tighten despite large stocks

Record sales of milk powder to Mexico and dry whey to China lead dairy exports.

Global milk production is tightening quickly, and in the face of firm domestic demand, the surplus available for exports has been reduced sharply.

At a time when farmers will struggle to re-inflate production and stocks are unlikely to be released to the market quickly, prices are rising in markets and on the farm. However, the price recovery is driven by falling supply rather than demand, and price increases will be limited by continued weak global demand and significant stock overhang, according to the Rabobank "Global Dairy Quarterly Q3 2016" report.

The report said difficult conditions and low to negative farm margins have led global milk production to fall faster than expected. At the same time, however, demand for dairy products, particularly butter and cheese, has remained strong in the U.S. and has strengthened in Europe.

“Combined, the effect has been an even more dramatic reduction in surpluses available for export onto global markets than we predicted just a quarter ago.” according to Kevin Bellamy, Rabobank global dairy strategist. He added that the export surpluses will decline year over year by more than 3.4 million metric tons in the second half of 2016 — "more than at any time since the global financial crisis" — with a further reduction of 2.5 mmt expected in 2017.

U.S. exports head into positive territory

U.S. dairy exports topped $402 million in August, up 3% from last August and the first year-over-year increase in more than two years, according to Alan Levitt, vice president of communications and market analysis at the U.S. Dairy Export Council.

On a volume basis, exporters shipped 172,764 tons of milk powders, cheese, butterfat, whey and lactose during the month of August, 23% more than the prior year and the most since May 2015.

Sales to Mexico were $119.5 million, a 10-month high and up 31% from last year. Exports of milk powder to Mexico were a record-high 32,883 tons, up 80% from last year.

Levitt reported that exports of whey products to China were more than double year-ago levels and accounted for 45% of total U.S. whey shipments. Dry whey volume was the greatest since May 2015, led by record sales to China (9,308 tons). Exports of whey protein concentrate to China remain strong as well, with shipments up 38% year over year in the June-to-August period.

Cheese exports also have moved into positive territory, Levitt noted. August volume was 22,710 tons, up fractionally from last August, which he said marked the first year-over-year gain — albeit a very small one — since September 2014.

Shipments to top three markets of Mexico, Japan and South Korea were down 15% in August, but Levitt said this was offset by an increase of 20% to all other destinations, led by the Middle East/North Africa region, Central America and Southeast Asia.

On a total milk solids basis, U.S. exports were equivalent to 16.0% of U.S. milk production in August — the highest since April 2015.

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