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China's whole milk powder imports 'surprisingly robust'

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China’s imports of whole milk powder have been “surprisingly robust” given Covid-19 setbacks, US officials said, in a briefing which signalled only modest hits to world dairy demand from the pandemic.

 

The US Department of Agriculture, in a twice-yearly dairy market briefing, trimmed by 15,000 tonnes to 680,000 tonnes its forecast for China’s whole milk powder buy-ins in 2020, a key dynamic for market investors.

 

However, “despite this downward revision, this still represents a… record import volume”, and a rise of 9,000 tonnes year on year, the report said.

 

“Despite the slowdown in economic growth and port disruptions caused by Covid-19, purchases of WMP [whole milk powder] by China have been surprisingly robust with imports through May up 3% year on year.”

 

Demand forecast revisions

The forecast for global consumption of whole milk powder this year was trimmed by 51,000 tonnes from the December forecast, ahead of the pandemic, to 4.20m tonnes, but also representing a record high, and a gain of 34,000 tonnes year on year.

 

For skim milk powder (SMP), the 2020 demand estimate was downgraded by a more marked 177,000 tonnes to 3.91m tonnes, taking it behind the 2019 total of 4.02m tonnes, with cuts to expectations for countries including China and Mexico.

 

However, for butter, the consumption forecast was raised by 23,000 tonnes to a record 10.67m tonnes, helped by China, India and Russia upgrades.

 

For cheese, world consumption was now pegged at a record 20.67m tonnes, a 56,000-tonne upgrade, led by increased expectations for European Union demand.

 

The revisions suggested a notable increase in global skim milk powder supplies this year compared with 2019, and easier cheese supplies too, but little change in whole milk powder and butter surpluses.

 

‘Strong pace’

On milk production, the USDA made a small upgrade, of 1.3m tonnes to 299.4m tonnes, to its forecast for 2020 output from the key exporters – Argentina, Australia, the European Union, New Zealand and the US – whose supply levels are particularly important for world pricing.

 

The upgrade reflected improved expectations for Argentina and Australia, where early-2020 rains improved pasture conditions – although with the potential La Nina a threat to output in the South American country, where the weather phenomenon has a history of causing undue dryness.

 

The briefing also made a marked upgrade, of 79,000 tonnes to 864,000 tonnes, in the forecast for butter shipments from these countries, reflecting largely a hike in volumes from the EU, whose strong trade Agrimoney noted on Tuesday.

 

“EU butter prices are currently competitive on world markets and exports are expected to continue at a strong pace,” hitting a 15-year high of 265,000 tonnes, 70,000 tonnes more than expected in December.

 

Fat-filled milk powder vs WMP

By contrast EU shipments of skim milk powder “have been surprisingly slow”, falling 18% year on year in the first five months of 2020, the USDA said, cutting its forecast for the bloc’s full-year exports by 45,000 tonnes to 880,000 tonnes.

 

The weak performance comes despite “substantial” shipments, of 146,000 tonnes in the January-to-May period, of fat-filled milk powder – that is, SMP to which vegetable fat, such as palm oil, is added to form a cheaper alternative to whole milk powder.

 

This is particularly popular among many emerging market importers, such as Nigeria and Senegal.

 

“If the current rate of sales is maintained this could total 356,000 tonnes for the year,” a figure which would exceed the 320,000 tonnes of whole milk powder that the EU was forecast to ship in 2020.

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