Dairy market set for rough 2016, says USDEC

By Hal Conick contact

- Last updated on GMT

Milk powder inventory, Chinese and Russian imports and demand hang heavy over the diary market.
Milk powder inventory, Chinese and Russian imports and demand hang heavy over the diary market.

Related tags: Milk

The US Dairy Export Council expects another challenging year for the dairy market in 2016 as Russia and China continue to reduce their reliance on imports.

Alan Levitt, ‎vice president of communications at the USDEC, said it has been a seller’s market almost every other year in dairy, but 2015 and likely 2016 are buyer’s markets, with huge production and fleeting demand.

While production continues to grow steadily since 2010, with an extra 2% or 5m metric tons each year, the market has weakened heavily over the last 18 months.

China, Russia have huge effect on market

One big reason for fall in demand has been China’s import growth, or lack thereof, over the past two years. The country grew steadily in imports until 2013 after which it sharply decreased imports and increased its own production by about 10%.

Russia also plays a part he said, as it has cut off much of dairy imports from across the world. Russia and China, combined, imported 18m tons of milk equivalent in 2014; today, Levitt said they import 10m tons.

“It’s a staggering decline,”​ he said. “That’s 8m tons of milk, or 11% of the world’s [dairy production]. To make it more problematic, milk production is continuing to grow.”

Levitt said the trends is likely to continue in 2016 as suppliers are still pushing quantities that match import levels for 2014, levels he said “just aren’t there anymore”.​ While Levitt expects China to increase its imports in the coming years, he doesn’t envision growth like in previous years.

Gains in Ireland, the Netherlands, but inventory sky high

While China and Russia have not helped the market, there have been gains in Europe, particularly Ireland and the Netherlands. Levitt said these two countries are up 10% in production. On the buying side, he said imports from many countries have seen double digit growth, but not enough to fill holes that China has created.

Levitt said there will still be “inventories that hang over the market”​ that will delay market recovery, including European inventories of skim milk powder, at their highest in five years.

Levitt said there are more than 250,000 metric tons, doubled the desired market level, in inventory and it may get higher before 2015 is finished.

“In the US, we have inventory piling up here as well,”​ Levitt said, adding that commercial powder stocks reached a record high at the end of July.

Inventory will remain a “problem child”​ well into 2016, he said, and will more than likely delay market recovery even after supply and demand recover. 

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