Global Dairy Market Outlook

EU milk output performed strongly in the first half of 2018, up 1.8% on the previous year. Growth rates are now slowing and in line with seasonal profile.

Hot/dry weather conditions across the EU Continent over the summer are likely to raise feed costs over the winter months. The EU Commission outlook is for milk output to grow 1.2% in 2018 and 0.8% in 2019.

Recent weakness at GDT events indicate buyers are confident about New Zealand product supply, with a good milk production season in prospect from that region. This is despite the recent cut by Fonterra to their forecast milk price from $7.00 to $6.75/ kgMS.

EU Cheese Markets Hold Steady

EU curd and UK cheddar markets are firm but uncertainty related to Brexit could see front-loading of UK cheddar orders in Q4 2018 and higher stock holding in UK in Q1 2019 ahead of the March 2019 deadline.

EU cheese exports are becoming more challenged with softer demand noticeable in key regions of Middle East North Africa.

Volatility Likely to Remain a Feature of EU Butter Market

EU butter prices have again retreated after a move higher in early August. There is now a €1,500 differential between EU and weaker GDT butter prices with more butter added to the GDT platform.

Sentiment has also been negatively impacted by the prospect of 2,000 tonnes of New Zealand butter arriving in the EU towards the end of this year.

SMP Stocks Reducing But Continue to Overhang

Despite a small uplift in SMP prices due to tighter fresh supplies, headwinds are still present in the form of high global inventories, India export subsidies and upcoming New Zealand production season which will likely cap further gains.

Global Trade Tensions Continue to Add to Uncertainty

China imposed an additional 25% tariff on US dairy imports in July 2018 and has since published a further list of potential tariffs to include lactose, WPC80 and infant formula. US and Mexico have reached partial agreement to resolve the NAFTA conflict but additional tariffs imposed by Mexico on US cheese (20-25%) will remain in place for now.

There is now pressure on Canada to remain part of the three-nation deal which could mean concessions on their dairy sector.

Global Dairy Market Outlook Seems Somewhat Choppy for the Months Ahead

Key factors which are likely to impact on global dairy markets include constrained Northern Hemisphere production growth, trade uncertainty, weaker global demand and generally robust domestic demand at EU and US level.

First Published 25 September 2018