Milk prices won’t return to 2013 levels for over a decade, says EU

(Agrimoney) – Global commodity milk prices will grow only slowly over the next ten years, the EU Commission has said, as output from Europe remains strong.

“In 2016, commodity prices are expected to recover only slowly from the current lows, because world supply is expected to continue growing and stocks have accumulated,” the EU Commission said.

In a report from the EU Commission, global whole milk powder prices were seen rising from E2,174 a tonne in 2015 to E2,489 a tonne in 2016.

Prices were forecast to rise to E2,894 in 2025, remaining short of the peak touched in 2013.

“Given that it takes two to three months between changes in commodity prices feed into changes in the price for raw milk, the EU milk price is not expected to increase significantly in 2016… but set to increase by the end of the projection period,” the report said.

Boom…

Commodity milk prices boomed in late 2013 and early 2014, helped by an unprecedented surge in Chinese buying, and milk production boomed in response.

The report sees milk supply in EU, the US, New Zealand and Australia having increased by more than 1m tonnes in 2014.

And EU production got an additional boost in April 2015 from the end of milk quotas, which allowed farmers to ramp up supply.

…and bust

And as Chinese imports fell away, with demand from that country suppressed by a backlog of milk powder accumulated during the buying spree, as well as increasing domestic supply, global prices dropped.

Russian sanctions, implemented on imports from the EU in the wake of the Ukraine crisis have added to global demand woes.

“The Chinese market is now re-balancing and it is expected that its milk powder imports will grow by 3.5 % a year after the stocks have been absorbed,” the report said.

Global dairy consumption was seen growing at 1.9% per year over the next ten years, compared to 2.1% over the last decade.

Increasing efficiency

In the post-quota landscape, the EU dairy sector was seen growing increasingly efficient.

Between 2015 and 2025, the dairy herd was seen falling from 23.3m head to 21.5m head, but thanks to higher yields, milk production was seen rising from 158.6m tonnes to 172.2m tonnes.

And output was seen rising in every year until 2025.

Milk deliveries were seen rising even more sharply, due to lower on-farm use.

Capacity grows

“Production is no longer constrained by quotas and production capacity is strong, given very good agronomic and climatic conditions for milk production, big processing capacity, a wide variety of products and significant yield growth potential,” the Commission said.

On Tuesday, Kyle Schrad told Agrimoney.com that production in Europe was now the key drag on global dairy prices.

Prices within the EU were seen growing by 23% over the ten year period, to E374 a tonne of milk fats, from E304 a tonne, which would prop up production.

Exports rally

EU milk powder exports, which fell in 2015, were seen rising steadily in future.

Whole milk powder exports were seen up from 373,000 tonnes in 2015  to 532,000 tonnes in 2025, while skimmed milk powder exports were seen rising from 690,000 tonnes to 902,000 tonnes.

The EU was seen growing its share of the world dairy market, as production in top exporter New Zealand remained constrained by availability of natural resources.