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USDA GAIN: Dairy and Products


22 May 2012

USDA GAIN: EU-27 Dairy and Products Semi-Annual 2012USDA GAIN: EU-27 Dairy and Products Semi-Annual 2012

In 2012, EU-27 milk production is expected to continue to increase but at a slower rate than in 2011 due to reduced domestic and international demand. Softening economies in Europe, fluctuating prices for dairy products on the world market in the first four months of 2012 and decreasing farm-gate prices for milk in several EU member states are expected to dampen producer interest to expand dairy production the latter half of the year. Some member states affected by the unstable dairy market situation are calling for introduction of export refunds and increase in intervention prices for dairy commodities, but so far, the European Commission (EC) rejects such proposals. Raw milk output increase is expected to generate higher production of dairy products, mainly of hard cheese, and manufacture of NFDM and butter.
USDA Gain Report - Dairy and Products

Commodities:

Dairy, Milk, Fluid

Production, Supply and Demand Data Statistics:

Production:

After a two percent increase in milk deliveries in 2011, the largest increase since implementation of a quota system in 1984, milk supplies are expected to increase by only one percent in 2012. The 2011 France, Ireland and Poland registered the largest increases. The downward trend of cow numbers is expected to continue in 2012 but higher yields are expected to compensate lower inventories. Favorable world dairy market conditions, high producer prices and strong domestic demand for dairy products, especially in the first half of 2011, boosted milk deliveries and raised farmer’s willingness to expand production. Softening of the world market for dairy products in the second half of 2011 resulted in a decrease of EU-27 farm-gate prices in the first four months of 2012 and elevated concerns about potential oversupply of milk and milk products towards the end of 2012.

In 2011 milk deliveries to dairies exceeded fall 2011 estimates mainly due to higher than expected production in France, Poland and Germany – European countries which are strong exporters of dairy products on the world market.

While the overall EU-27 MY 2011/12 dairy quota was not filled, some Member States (MS) produced in excess of their allocated national quota and will be assessed a fine. Although the increase of milk quota in MY 2012/2013 will allow for further increase of milk production, higher costs of feed, energy, fertilizers and the ongoing economic difficulties in certain EU member states are dampen such efforts. For example French milk producers income suffered as production costs increased an estimated 7 percent on average in 2011, mainly due to higher fertilizer, energy, and feed costs.

Consumption:

Fluid milk disappearance in 2012 is expected to increase in parallel to demographic changes within the EU but the majority of higher raw milk output is expected to be consumed by the processing industry.

Trade:

In 2011, EU-27 fluid milk exports to extra EU destinations increased due to stronger demand by Croatia, supplied mainly by Hungary, Czech Republic and Germany. External trade in 2012 is expected to remain stable.

Commodities:

Dairy, Cheese

Production, Supply and Demand Data Statistics:

Production:

EU-27 cheese production is expected to increase by one percent in 2012 in reaction to higher output of milk, stronger domestic demand and higher exports. Use of raw milk for cheese and residual whey production remains competitive versus utilization for manufacturing of other dairy products. Attractive prices for exported whey are an additional incentive for increased cheese manufacturing. Dairy industries in Germany, France, and Italy remain the driving forces of European cheese production, supplying over 55 percent of the total output. Increase of cheese production in 2011 compared to original estimate in the fall, stems mainly from higher than originally predicted production in France.

Consumption:

In 2012, domestic cheese consumption within the EU-27 is expected to remain strong; however changes in the pattern of consumption are noted in several MS. Higher quality and more expensive brands of European cheeses are mainly exported, while European consumers switch more often to lower quality brands or fresh cheese.

Trade:

EU-27 total export of cheeses is expected to recover in 2012 after declining in 2011 mostly due to lower demand from Russia. Despite continuing world demand, EU-27 cheese exports in 2012 will be limited by availability of cheese on the EU market. Major external markets for EU cheeses include the United States, Switzerland, Japan, Russia, and Saudi Arabia. In July 2011, two German cheese producers lost their export license to Russia. As a result German exports to Russia decreased by 27 percent (21,000MT) affecting overall EU-27 cheese exports last year. Cheese imports are projected to remain within the established quota due to growing domestic supplies.

Commodities:

Dairy, Butter

Production, Supply and Demand Data Statistics:

Production:

In 2012, EU-27 butter production is projected to rise due to higher supplies of raw milk and higher milk fat content in raw milk. Higher forecasts for output of butter in 2012 stem mainly from continuing demand for exports of NFDM as butter is a residual product of the manufacturing process. Reduced world prices for butter and lowered export demand resulted in elevated interest in participation in the 2012 Private Storage Aid scheme (PSA). Increase of butter production in 2011 compared to original estimate in the fall, stems mainly from higher than originally predicted production in Germany and France.

Consumption:

In 2012, EU-27 domestic consumption of butter is expected to increase in comparison to 2011 due to higher production and reduced exports. Although health concerns are still a factor limiting some butter consumption, economic considerations (vegetable oil prices increased at a higher rate than butter prices in 2011) are playing a greater role in consumer buying decisions.

Trade:

In 2011, exports of butter decreased by 21 percent in comparison to previous year as a result of reduced demand from Russia and Middle East countries. In the first two months of 2012, EU exports of butter decreased by 33 percent in comparison to the same period of 2011. The decrease of exports results from reduced demand mainly from Russia (38 percent decrease) and strong competition from other suppliers. Import demand from Russia, Middle East and North African may pick up later this year with falling global prices. Imports are expected to increase based on projections of enlarged import quota from New Zealand. In the first two months of 2012 imports from New Zealand amounted to 21,000 MT, five times more than in the same period of 2011.

Stocks:

Intervention stocks built in 2009 were consumed under EU food assistance programs. The PSA, started on March 1, will close on August 15. The quantity of butter in PSA built in March and April 2012 is 70 percent higher than that in March and April 2011 which indicates existing surplus of butter on the domestic market. High PSA stocks were built despite the reduction of subsidies for storage under the PSA scheme announced by the EC on February 23, 2012.

Policy:

On April 15, 2012, butter's weighted average price stood at 285 Euros per 100 kilograms. The EU intervention price is set at 221.75 Euros per 100 kilograms.

Commodities:

Dairy, Milk, Nonfat Dry

Production, Supply and Demand Data Statistics:

Production:

In 2011 strong export demand boosted EU-27 Non-Fat Dry Milk (NFDM) productions by over 11 percent. Although production and export of NFDM remains profitable, margins have been declining since fall of 2011 due to the decrease in world market prices, making production of skim milk less attractive. In 2012 NFDM output should continue to increase on account of higher supplies of milk and demand for exports, albeit at a level of growth lower than registered in 2011.

Consumption:

The 2011 consumption increase resulted from domestic use of intervention stocks within the assistance programs for needy people. In 2011, 94,000 MT of intervention NFDM stocks was allocated for this purpose within the national programs of food assistance to needy people. Italy, Spain, Poland, and France were the primary beneficiaries of this aid. In 2012, consumption of NFDM is expected to return down to more normal levels. High prices for whey are expected to favor the use of NFDM in animal feeding rations.

Trade:

In 2011, NFDM exports were 37 percent higher than a year ago as a result of higher export demand and availability of product from increased production and release of intervention stocks. In the first two months of 2012, EU-27 exports of NFDM increased an additional 37 percent. Increased exports to China and Vietnam offset reduced shipments to Algeria. However, France maintained its high level of exports of NFDM to Algeria and increased exports to India. In 2012, exports of NFDM are expected to decline in comparison to 2011 but remain at a high level due to increasing production and continuing export demand projected by world market analysts. European exchange rates will play an important role for the global market competitiveness of NFDM.

Stocks:

The use of NFDM intervention stocks for food programs combined with sales through tenders reduced 2011 stocks by year’s end to 50,000 MT. The remaining stocks were committed to the 2012 food assistance programs.

Policy:

On April 15, 2012, the weighted average EU-27 price for NFDM amounted to 207 Euros per hundred kilograms, still above the EU intervention price of 174.69 Euro.

Commodities:

Dairy, Dry Whole Milk Powder

Production, Supply and Demand Data Statistics:

Production:

In 2012, EU-27 whole milk powder (WMP) production is expected to increase slightly in comparison to 2011. Strong competition for raw milk supplies in 2012 across the EU-27 and very competitive export markets are expected to limit increase of WDM production.

Consumption:

In 2011, domestic disappearance of WDM increased in response to reduced exports. In 2012, consumption is expected to remain flat at the previous year’s level.

Trade:

In 2011, strong competition from Oceania in the Asian markets coupled with lower production resulted in reduced EU-27 exports. In the first two months of 2012 EU-27 exports were 18 percent below the previous year’s level.

May 2012

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