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Chinese milk output rebound to 'constrain' dairy imports in 2018

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China will see “constrained imports” of both skim milk and whole milk powder in 2018, with buy-ins undermined by a rebound in the country’s own dairy production, enhanced by industry modernisation.

 

The US Department of Agriculture’s Beijing bureau, in its first forecast for next year’s Chinese dairy supply and demand – viewed as a key influence on world prices - pegged output of fluid cow’s milk at 36.5m tonnes, a rise of 2.8% year on year.

 

The increase, well above the 1.5% rise forecast by Rabobank, would recover about half ground lost during output decline over 2016 and 2017.

 

And it reflects, besides a drop in corn silage costs, improvements to productivity encouraged by enhanced genetics and improved husbandry, which is expected to maintain improvement in the country’s milk output.

 

“China will continue to see increased production as a result of long-term investments in dairy cattle genetics and from the consolidation and modernisation of dairy facilities,” the bureau said.

 

‘Safer and more trustworthy’

 

However, the increased output bodes ill for China’s dairy import needs, with the bureau saying that the “domestic production increase will constrain imports, ending a multi-year trend of import growth”.

 

In fact, whole milk powder (WMP) imports were forecast rising by 50,000 tonnes to 500,000 tonnes, underpinned by consumer preference for foreign products after a series of scandals earlier this decade over tainting of domestic product.

 

“Imported WMP products continue to be viewed by Chinese consumers as being safer and more trustworthy,” the bureau said.

 

“They also enjoy a longer shelf life of two years - generally double that of similar Chinese products.”

 

Skim vs whole milk

 

Nonetheless, buy-ins of whole milk powder – of which China is the top importer, consumer and producer - will remain well below the 671,000-tonnes record set in 2014, amid stockpiling amid fears over rising prices.

 

And China’s imports of fresh milk will fall to a three-year low of 520,000 tonnes.

 

Meanwhile, imports of skim milk powder (SMP) will drop by 25,000 tonnes to a three-year low of 200,000 tonnes, the bureau said, forecasting a recovery in relative prices for those of whole milk powder.

 

“Industry reports that Chinese dairy manufacturers used relatively more SMP to substitute for WMP as SMP prices were low enough to compensate for the quality difference.

 

“However, as the SMP price recovers in 2018, imports and usage will likely decrease back to previous levels.”

 

‘Bit of a surprise’

 

In fact, skim milk powder prices outperformed at the latest GlobalDairyTrade auction, last week, showing 1.2% growth, compared with a 5.5% drop those of whole milk powder.

 

“That was a bit of a surprise because Fonterra increased the volume of its SMP offerings over the next 12 months, an indication of ample supplies,” the US-based Milk Producers Council said.

 

In the European Union – the top producer, consumer and exporter of skim milk powder – official data show prices easing 0.4% to E154.87 per 100 kilogrammes in the week to November 11, the lowest on data going back to the start of 2001.

 

However, that also represented outperformance compared with values of whole milk powder, which dropped by 4.2% to E277.37 per 100 kilogrammes.

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