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Dairy Kicks Off 2019 With Price Improvement

By Alan Levitt and Marc Beck
Slowly but surely, global markets are moving into better balance.  
For the last three years, the dairy market conversation has been dominated by global milk supply growth and European intervention stocks of milk powder. These twin factors put us in a buyers’ market and kept a lid on global prices. But we start this year under different circumstances, as we explain in USDEC’s latest issue of Global Dairy Market Outlook, a publication that assesses the state of global dairy trade, loaded with data and analysis.
For the first time since the fourth quarter of 2016, most major suppliers won’t have much excess to export. And for the first time since early 2016, traders are operating in an environment without the overhang of intervention stocks.
As the world’s largest exporter, EU milk production always has an outsized impact. Weather has depressed production in Germany and France (-2.1 percent in October-November) and phosphate regulations have done the same in the Netherlands (-5.7 percent in September-December). Gains in Ireland and Poland haven’t been enough to compensate. EU-28 deliveries were down about 0.5 percent in the last five months of 2018. We look for output down 1.0 percent to 1.5 percent in the first quarter of the year and expect to see little to no growth for the full year.
The United States, Australia, Argentina and Uruguay also are seeing contraction in milk production growth.
Meanwhile, the European Commission unloaded 247,857 tons of SMP out of intervention in the last four months, a third of that in a single mid-January tender. Holdings are down to just 3,651 tons and the cupboard should be empty after this week’s tender.
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