Dairy markets: renewed milk output dampens sentiment

The sentiment in dairy markets has turned rather bearish over the last month, leaving many farmers asking why this is, given we are still seeing phenomenal butter and fat prices, while cheese prices are holding strong.

In the US, milk production continues to grow, albeit the pace of growth has slowed down

Aside from skimmed milk powder (SMP) prices remaining on the floor, the major reason for the switch to a negative outlook for many traders in global dairy markets has been the recovery in milk production in some major producing regions since August.

Europe ramps up

As reported in last week's Irish Farmers Journal, Germany, France and the UK have all posted increases in domestic milk production for August, as farmers react to high milk prices.

An even bigger warning flag for European dairy markets was the return to growth in Dutch milk production in September.

Figures released this week by Eurostat show Dutch farmers produced just over 1.1bn litres of milk in September, which was 0.5% higher than the same month last year. This is the first monthly increase in Dutch milk production in six months, as phosphate quotas have put new shackles on milk production.

Any ideas of a big decline in Dutch milk production following the phosphate quotas introduced in early 2017 have proved unfounded. While some quarters had predicted a decline in Dutch milk production by as much as 10% this year, the reality is that Dutch milk production from January to September is just 0.7% down on last year.

The US surge slows

In the US, milk production continues to grow, albeit the pace of growth has slowed down. For September, US milk production came in at 7.5bn litres, which was 1.1% ahead of the same month last year.

However, this growth is slower than the 2% growth rate in milk supply the US had been experiencing over the last six months.

The reason for this slowdown in growth is the heatwave in September that engulfed California, which is the largest milk-producing state in the US.

Temperatures in California soared to record highs of 44°C in mid-September, which put a big dent in cow performance.

Figures released by the USDA show Californian milk supply was down 3.5% for September.

Offsetting the declines in California, there continues to be rapid expansion in other states like Texas, where milk production for September alone was up 10%.

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