Despite slow milk production growth around the world, supply will likely outpace demand in 2019 leaving prices pretty similar to 2018, according to Nate Donnay director of dairy marketing for INTL FCStone.
“Fat might be a little bit lower, protein might be a little bit higher, cheese is in the middle and cheese average probably looks a lot like last year. At this point it doesn’t look like we’re going to see enough of a drop in production anywhere in the world to really drive things higher,” he told MILK editor Mike Opperman.
On the supply side, the short-term is relatively constraining, according to Donnay.
“We have milk production below year ago levels in Europe, we have milk production growth in the U.S. running the less than 1%, New Zealand is doing okay, but Australia is down and Argentina is slowing down, so in total, the supply side isn’t growing all that much,” he explained. “What we’ve seen recently is a bump higher on the demand side. It looks like total global milk equivalent imports were up over 8% from a year in November and our forecast is December was probably up over 8% as well. We have a relatively constraining supply side and improvement on the demand side is currently helping to lift dairy prices.”
Still trade issues and the strength of the U.S. dollar are inhibiting export growth for American milk.
“We’ve seen a significant drop in U.S. shipments to China of the tariff effected products,” he said. “In fact, the drop off has been a little bit more than what I was expecting based on historical analysis. I thought that the 20% tariffs would reduce our shipments to China by about 20% and we’re actually seeing the drop off be more like 30% to 40%. But it’s almost perfectly offset by shipments out of Europe.”
The most recent November European export data shows European shipments of dry whey to China are up significantly, Donnay explained.
“Total Chinese imports still doing okay, they are just shifting who they’re buying from,” he said.
Still as long as macro-economic risks are avoided, like a deepening trade war or a hard Brexit, Donnay said the average price for 2019 to should be similar to 2018.