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China’s Self-Sufficiency in Milk Production Shakes Global Dairy Markets

World 27.06.2024
Source: The DairyNews
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After a year of global milk prices averaging around 37c per litre, Rabobank market analysts report that China’s self-sufficiency in milk production has significantly impacted the world dairy industry.
China’s Self-Sufficiency in Milk Production Shakes Global Dairy Markets
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China’s imports of whole milk powder have dramatically decreased, dropping from an average of 670,000 metric tons (2018-2022) to 430,000 metric tons in 2023. The country’s milk production surged by 11 million metric tons from 2018 to 2023, a monumental achievement. The United States Department of Agriculture estimated China’s milk production at 41 million tonnes in 2023, a 4.6% increase from the previous year and a 28% rise since 2019.

Rabobank analysts compare China to a "dairy demand domino" that triggers a chain reaction when it falls. New Zealand, the primary dairy exporter to China, faces the challenge of finding new markets for nearly 150,000 tonnes of whole milk powder that China no longer requires. This volume equates to almost 1.3 million tonnes of milk, or 6% of New Zealand’s annual milk production, intensifying competition with other dairy-exporting regions such as the EU and the United States.

This competition has led to lower-than-average global milk powder prices, impacting dairy farmers who are now receiving the lowest milk prices since winter 2020. According to the International Farm Comparison Network's Combined World Milk Price Indicator, the average world price was about 42c USD in May 2023, rising to nearly 44c USD in June 2023, before dropping to about 36c in August. Prices then consistently picked up, reaching 43c in May 2024, similar to 12 months earlier.

The Rabobank analysts pose critical questions about the global market’s future: Will China’s self-sufficiency inspire other regions to follow suit, or create opportunities for importers previously priced out of the market?

Chinese demand has driven the global dairy market in recent years. The pandemic and economic challenges weakened Chinese demand, and stronger domestic milk production has further reduced China’s need for imports. New Zealand, China’s largest dairy supplier, faces the challenge of finding new markets for its dairy products. Without this, global commodity prices may stagnate, unless supply shortages in some regions balance the market.

Recent market signals were mixed. At the Global Dairy Trade auction last week, prices dropped for the first time since March. Conversely, EU dairy exports remained strong in early 2024, with cheese exports up 7% and whole milk exports rising by 18%.

Despite a decline in Dutch and Irish milk supplies, the overall EU milk supply increased by 1.2% in the first quarter of 2024, driven by gains in Poland, Belgium, Germany, and France.

In New Zealand, Fonterra’s opening milk price forecast for the next season dipped below bank predictions, suggesting another season of fiscal constraint due to reduced demand from China. Global milk production continues to slow, with declines in Argentina and the United States, while Australia reported a 3% increase.

Irish dairy farmers received a slight boost when Tirlán raised its May creamery milk price by 0.5cpl. Chairman John Murphy noted a recent increase in returns for some dairy products, driven by reduced supply volumes in certain regions but cautioned about the potential impact of higher prices on consumer demand.

As global milk output growth slows, dairy farmers may need to rely on this trend to support milk and dairy product prices amid the evolving market landscape.
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