USDA questions gloom on China dairy imports

(Agrimoney) – US officials countered talk of tumbling Chinese dairy import demand as it hiked by more than 50% its forecast for the country’s purchases of whole milk powder, citing a disappointing rise in the country’s own production.

The US Department of Agriculture acknowledged “speculation that China’s volume of dairy imports were set to decline in 2014”, and “much uncertainty” over future prospects for trade.

However, “the evidence to date suggests that import demand for a broad range of dairy products shows no sign of flagging,” it said.

“The pace of imports of milk powder during the early months of 2014 continues at a breath-taking pace.”

‘Surge of additional product’

The comments contrast with market talk that weaker demand by China, the world’s top dairy importer, is behind a collapse in dairy values, which at GlobalDairyTrade auction this week hit a 21-month low.

The USDA highlighted the rise in production as being behind the collapse, as it raised by 3.2m tonnes to 482.1m tonnes its forecast for world cow’s milk output this year, led by upgrades to European Union and New Zealand volumes.

“Following the high international prices for dairy products in the second half of 2013 and early 2014, milk production in a number of countries has sharply rebounded as farmers responded to the strong margins.

“This trend has been further accelerated by favourable weather, particularly in New Zealand and the European Union.

“The surge of additional product on the markets has put downward pressure on prices, particularly for whole milk powder,” which has dropped nearly 30% from early-year highs.

Soaring powder imports

For China, the USDA lowered its forecast for milk production by 1.0m tonnes to 36.0m tonnes, albeit still representing a 5.0% rise year on year, “as stricter health requirements for milk are expected to lead to reduced supplies from small-scale dairy farmers”.

There were other reasons to expect buoyant demand too, with the history of tainting scares in China’s dairy sector still prompting “concern” among consumers over the quality of domestic supplies.

“Consumers appear motivated to pay premium prices for imported products such as milk powder and fluid milk.”

Indeed, for the USDA hiked its forecasts for China’s whole milk powder imports by 350,000 tonnes to 1.0m tonnes – more than triple those three years ago.

The department cited “limited domestic supplies, stricter regulations, and growing consumer demand”.