W49 Dairy Update: Transformations in EU and US Dairy Production Strategies

Shifting Landscape of Dairy Production in Europe

The EU Agricultural Outlook 2023-2035 provides insights into the potential transformations awaiting the European Union (EU) dairy sector, primarily influenced by mounting pressures from national and EU environmental policies. The report envisages a significant recalibration, anticipating a 13% reduction in the EU dairy herd by 2035, attributed to forthcoming stringent environmental regulations. A pivotal shift towards sustainability and organic practices is forecasted to redefine industry dynamics, with an estimated growth rate of 0.2% per year in milk production. Despite global projections of increased milk production, the EU's growth trajectory is predicted to lag as Southeast Asia and North Africa emerge as prominent drivers of future expansion.

This evolving landscape underscores a turning point in EU milk production, characterized by a more measured growth pace, with historical drivers like the productivity gap among EU countries gradually diminishing in influence. The dairy industry is poised to navigate this intricate terrain, aiming for stable export volumes and focusing on cheese as a flagship product. Despite a recent decline in dairy prices, the report anticipates a rebound, particularly emphasizing rising cheese prices.

Trade dynamics exhibit nuanced shifts, with import growth for milk powders expected to decelerate, influenced by increased production in key importer regions. Concurrently, cheese and whey production streams are projected to experience growth by around 2.3 million metric tons (mmt), potentially absorbing 36% of the EU milk pool by 2035. While skim milk powder (SMP) may see limited growth at 2.3%, butter production is forecasted to remain stable.

The Netherlands plays a notable role in European milk production, particularly goat milk, contributing 10.3% (440 thousand metric tons) of non-cow milk, surpassing France and Spain. Sheep's milk, the second most produced in Europe, sees joint production in Spain and Greece at just over 1.3 mmt annually. However, both goat and sheep milk are overshadowed by the substantial annual production of 160 mmt of cow's milk in the EU.

Germany leads in major dairy production, including cheese, with the Netherlands ranking just outside the top 3 at 974,000 mt annually. Germany also dominates in whey production, contributing 29% of European output, followed by Poland as the third-largest producer.

Despite being a byproduct of cheese production, the Netherlands, with its annual cheese production of 974,000 mmt, narrowly misses the top 3 in European cheese production, where Germany, France, and Italy take the lead.

USDA's Revised Outlook on US Milk Production (2023-2024) Amid Shifting Consumer Preferences and the Rise of Butterfat Products

The United States Department of Agriculture (USDA) has revised its outlook for United States (US) milk production in 2023 and 2024, lowering estimates due to dairy farmers prioritizing butter and cheese production over beverage milk. The USDA's monthly world agricultural supply and demand report reduced the 2024 milk production forecast to 104 mmt, down by 0.45 mmt from the previous outlook and the lowest estimate for that year. The 2023 milk production forecast was also adjusted downward by 0.09 mmt to 103 mmt. The reduction is attributed to decreased milk production per cow and a smaller dairy herd.

Dairy farmers are adjusting their practices to cater to the demand for butter and cheese components, resulting in a decline in overall milk production. This shift is driven by changing consumer preferences, with more individuals choosing dairy products like butter and cheese over traditional beverage milk. The renewed popularity of butterfat products influenced the trend, as consumers have become more receptive to saturated fats in recent years. USDA data indicates that the percentage of butterfat in milk has reached its highest level since the Great Depression, showing a notable increase over the past decade.

Adjustments in Condensed Milk and Butter Rates for Russian Markets

The Belarus Ministry of Agriculture and Food has increased the minimum export prices for condensed milk (cream) destined for Russia. As of December 7, the minimum export price for condensed milk (cream) with a fat content of more than 1.5% has been raised from USD 3.36 per kilogram (kg) to USD 3.41/kg. Export prices for butter, in effect since November 25, remain unchanged at USD 6.05/ kg for fat content of 80% or more and USD 5.5/kg for fat content from 72% to 80%. Prices for other dairy products and cattle meat for supplies to Russia are being maintained at the current level. Since Jun-22, the Ministry has been establishing minimum export prices for various food products based on specific sales markets including Russia, the Eurasian Economic Union (EAEU) countries, Commonwealth of Independent States (CIS) countries (except EAEU countries and Azerbaijan), Georgia, Azerbaijan, and countries outside the CIS (except Georgia).