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2020 Outlook: Canada’s dairy sector

FCC Ag Economics helps you make sense of these top economic trends and issues likely to affect your operation in 2020:
  • Slow production growth
  • Expanded market access to foreign dairy products
  • Robust domestic demand for dairy products
  • Higher milk price and input costs
Dairy in 2018-19 (August to July) had a year of adjustments. Total butterfat production in Canada stagnated at 380 million kg between 2017-18 and 2018-19. Butterfat production declined 1.3% in the P5 milk pool, but increased by 3.2% in the Western Milk Pool (WMP).
 
The P5 production decline stems from production-limiting measures. This was partially motivated by butter inventories exceeding the industry target, despite disappearance of butterfat growing at a steady pace.
 
A 1% increase in quota was issued in the P5 effective February 1st.  Large butter inventories should limit future increases in production. But production could climb as producers bring forward production from credit days.
 
Domestic revenues for butterfat marginally increased in 2019, while revenues for proteins and other solids non-fat (SNF) increased by 13% and 4%. This increased milk revenues by 4.8% in the P5 and 2.1% in the WMP. Estimated average costs increased by 1.2% in the P5 and 2.5% in the WMP. Average net returns in 2019 increased by $2.70 per hl in the P5, while the estimated average net return in the WMP declined by $0.11 per hl.
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