Dairy stocks a critical element of market recovery

Published 22 June 16

Signs of a rebalancing of global dairy markets are becoming more evident, with forecasts suggesting milk production is moving more in line with demand levels. However, as pointed out at the recent IFCN conference, the sheer volume of dairy product stocks being held will play a big role in how long it takes for prices to change direction.

Based on FAO’s June forecasts, it appears there will be little change in the level of stocks in 2016, but neither will they grow further. The predictions suggest the EU and US will both produce more milk than required to satisfy home markets and any expected change in exports. This would, however, be partially offset by the shortages expected from New Zealand, Australia and Argentina.

Forecasted milk production and trade developments – 2016 
(million litres) EU-28 New Zealand Australia Argentina United States
change in milk production  1.9 -0.4 -0.1 -0.5 1.8
change in net trade* 0.7 0.1 0.1 0 -0.1
stock change 1.2 -0.5 -0.2 -0.5 1.9

*growth in exports- growth in imports, negative figure suggests net growth in imports

Source: FAO

The export position of the US will be an important factor in how much prices start to recover during 2016. At current prices, the EU can compete on international markets, but the US less so due to high domestic prices – especially for butter. However, further growth in stocks in the US is likely to put pressure on domestic prices as butter and cheese stocks are at historically high levels according to USDA figures. This would then reopen export opportunities for the US, and possibly slow down any drawdown in stocks in the EU.