Global dairy market: rising milk prices, rising demand in China and falling imports in Mexico

Источник: The DairyNews
The gradual exit from lockdown was marked in the global dairy market by rising prices, increased demand and imports from China, and a decrease in demand from some other importing countries.

Stock quotations and reality? 

Analysts and partners of the international farm analysis network IFCN discussed the current situation in the global and regional dairy markets during the webinar.

According to the analytical network IFCN, the price of milk in the world market in July 2020 was 36.7 dollars per 100 kg (26.16 rubles per kg, for comparison, the average INDEX DIA in July was 26.75 rubles per kg, 0.11% lower than in June 2020). The price of milk in July according to IFCN data is 5% higher than the June 2020 price, the price began to rise for the first time since February 2020. The key growth factor is the recovery of demand for dairy products, the growth of prices on the stock exchange, and the growth of imports from Asian countries.

Prices for exchange-traded dairy products in July reached the level of 33-35 dollars per 100 kg. At the same time, according to IFCN analysts, prices on the exchange may be seriously inflated, as well as expectations about the revival of demand. According to Torsten Hemme, Director of the IFCN analytical network, there is a high probability of a period of low prices for dairy products in 2020.

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We will remind that at the last auction of the New Zealand exchange GDT (Global Dairy Trade) on August 4, 2020, the price index for dairy products fell by 5.1%, the price of whole milk powder, cheddar, skimmed milk powder and butter decreased.

According to IFCN analysts, the key price growth factors in the dairy market in July 2020 were panic purchases in retail during the "first" and "second" waves of the pandemic, the level of stocks, the recovery of demand and imports of dairy products, the recovery of pig populations in China after ASF epidemic last year, which is important for the whey market.

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The US and India are hotbeds of the dairy corona-crisis 

Corona-crisis affected the dairy markets of India and the United States the most. During the hard lockdown in the United States, milk prices fell by 25%, the supply of milk on the market did not change, but the demand fell sharply, and the market formed a significant surplus. In May 2020, the crisis went down, prices began to rise, up to +50% compared to March-April 2020. Milk production declined slightly during this period, but demand for dairy products began to recover.

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China: betting on mega-farms and growing demand for dairy products

China is still giving a positive signal to the world dairy market. In China, it seems that the consumption of dairy products during the pandemic did not decrease, on the contrary, there was an increase in demand, especially for the fresh category. Chinese expert, IFCN partner, Sam Shi calls the reduction in the price of dairy products on the shelf the reason for the increase in demand. Already in the spring, imports of dairy products to China began to grow, for example, the import of whey in January-May 2020 amounted to 0.22 million tons, an increase of 23%. Imports of cream increased by 43%. China is still the most important importer of dairy products on the world market, but not everyone can take full advantage of this. Countries such as New Zealand, which have concluded a free trade agreement with China, effectively zeroing out duties on most dairy products, benefit.

It is equally important that China is interested in increasing imports of dairy cattle. In the next five years, it is planned to build at least 22 mega-farms for 800 thousand cows. China relies on mega-farms, as it is easier for large projects to attract loans and subsidies. The TOP 25 dairy companies in the country produce 50% of all milk in China, about 9.35 million tons, keep 36% of the population of cows (about 1 million head), while the yield on the farms of such companies reaches 9 thousand kg per cow per year.

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Milk production in China in January-June 2020 increased by 7.9% compared to the corresponding period in 2019 to 14.31 million tons. In January-March 2020, production slowed down, but since April there has been an increase due to higher prices for raw milk, demand for dairy products has started to grow due quitting the lockdown regime, and the recovery in the catering segment has begun.

Mexico: from net importers to self-sufficiency?

An interesting trend in 2020 is demonstrated by some countries that import milk: imports are becoming more expensive and decreasing, milk in the domestic market is becoming more competitive, and the level of self-sufficiency in milk is growing. Such trends can be observed in Russia this year. Something similar is happening in Mexico, although the country is still far from self-sufficiency.

Mexico is one of the key importers of dairy products from the United States. In 2019, imports of dairy products from the United States to Mexico, despite all the contradictions around the new trade agreement, increased by 11% to 1,546 million dollars. Accordingly, the largest suppliers of dairy products to Mexico are the United States (66%) and New Zealand (14%).

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The main import item is milk powder (34%).  

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However, this year, due to the exchange rate of the national currency, local raw materials became cheaper than imported ones and imports of dairy products decreased. The country has a difficult economic situation: in 2020, Gross National Product fell by 9.5%, consumption fell by 7.5%, and the unemployment rate reached 6%. Unlike the US and EU, there was no real support for businesses and consumers during the pandemic.

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There are 92,430 dairy farms in the country, including 92.29% of small farms (less than 60 cows per farm). The number of cows totals 2 153 656 head, the production of milk is 12 437 766 tons. The capacity of the milk market is 15.7 million tons, and imports reach 3.3 million tons (20.8%). The Mexican authorities are talking about the possibility of achieving self-sufficiency in milk, but according to experts, the current situation with a decrease in imports is due to the market situation and it is unlikely that self-sufficiency can be achieved in the coming years.

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Read more at © DairyNews.ru

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