Markets Processing

Cheap Milk Becomes Pig Swill in China

CHINA - Chinese dairies are marketing milk to pig farms or throwing it away in response to extreme price lows from milk buyers as overproduction plagues the market.

12 January 2015

2 minute read

Dairy producers in north eastern Hebei province are fattening pigs and calves on milk usually destined for processing and culling cows to halt losses.

A very challenging winter could see farms go under, which according to a Chinese government news agency is a surprise given the level of dairy prices early last year.

Over production is to blame on market trends, says the agency. This has seen lower price revisions for European and Southern Hemisphere farmers.

European markets have been ‘flooded’ with milk, as US and New Zealand production has also surged.

Latest UK projections are that output will rise to a 20-year high for the 2014/15 milk year.

A DairyCo report expects deliveries to exceed 14 billion litres as deliveries remain 10 per cent above the five year average.

Also, stronger December production has been reported by Fonterra in New Zealand and Australia.

The effect has been felt on processor cash flow. UK cooperative First Milk has been forced to defer payments two weeks in light of cash restrictions.

The announcement was part of a business restructuring exercise to build a stronger platform after what it called a “year of volatility”.

Elsewhere in Europe, farmers are battling to stay afloat, with certain regional complications and quota abolition adding pressure.

This makes 2015 critical for the future of dairying in Spain, farm lobbyists told the EU parliament this week.

Danish producers state Arla’s flat rate and currency conversion complications are “unfair” for Danish producers, while Russia’s trade ban puts northern states and some cheese sectors in a tight spot.

Finnish and Baltic States farmers have come under particular stress since the August trade ban.

But, light could be at the end of the tunnel. A positive result was seen at this week’s Global Dairy Trade, which closed 3.6 per cent higher. All commodities firmed, particularly butter products, reported Fonterra.

Furthermore, it added that New Zealand may have its production reined in this year by drier weather and environmental burdens.

Impending irrigation strictures could limit South Island output, which, like the North Island, has seen improved growing conditions.

Rabobank’s December quarterly report suggested the market had reached a floor after a 50 per cent drop in world dairy commodity prices.