Weekly Product Updates

W38: Dairy Update

Cow Milk
United States
Published Sep 27, 2023

In W38 in the dairy landscape, the United States Department of Agriculture (USDA) reports that United States (US) milk production reached 8.6 billion pounds (lbs) in Aug-23, a marginal 0.2% month-on-month (MoM) decrease and a minimal year-on-year (YoY) change. Milk production dropped by 0.45 kilograms (kg) per cow across the 24 primary US states. The USDA notes that the overall cow count stood at 9.29 million heads in Aug-23, unchanged from Jul-23 but decreased by 16 thousand heads compared to Aug-22. Experts anticipate this downward trend in both milk production and cow numbers to continue.

The USDA highlights that New York surpassed Texas to secure the fourth position among the top six milk-producing states, primarily due to a large farm fire in Texas earlier in 2023. The most notable milk production decreases were observed in California (-88 million kg), New Mexico (-24.5 million kg), and Texas (-18.6 million kg), while substantial increases came from New York (+22.7 million kg), Michigan (+17.7 million kg), Wisconsin (+14 million kg), and South Dakota (+13.6 million kg). Severe weather conditions in California contributed to a significant production per cow drop, reaching 100 lbs, with New Mexico experiencing the second-largest decline at 31.75 lbs.

The Brazilian dairy market faces a sharp decline in milk prices, impacting producers' financial stability. High production costs, worsened by the COVID-19 pandemic, led to decreased milk intake in 2021 (-2.03% YoY) and 2022 (-4.79% YoY). The downward trend persisted into Q1-23, with a 0.8% YoY decline and the seventh consecutive quarter contraction. While Q2-23 registered a 3.9% YoY increase in industry funding, indicating a potential recovery, an ongoing market imbalance, and increased milk imports dampened producer prices. Real-term prices received by Brazilian milk producers fell by around 27% YoY in Aug-23, eroding profit margins, especially for small and medium-sized producers.

Brazil's dairy imports reached a record 1.46 billion liters in the first eight months of 2023, primarily from Mercosur countries. However, Argentina's dairy subsidies sparked concerns of unfair competition. This situation led to proposed measures by the Brazilian Confederation of Agriculture and Livestock (CNA), including an emergency rural credit line, credit operation renegotiations, and working capital support for producers.

Lastly, China, the world's third-largest milk producer and the leading importer, has witnessed remarkable growth in its milk production over the past two decades. China’s milk production surged from 13 million metric tons (mmt) in 2002 to 39 mmt in 2022, a 200% increase. This substantial expansion is attributed to significant investments in the sector aimed at bolstering national food security. China's emphasis on self-sufficiency since 2019 further accelerated this growth, promoting large-scale dairy farm expansions and high-quality forage grass cultivation. As a result, Rabobank forecasts an import deficit of 11.9 mmt liquid milk equivalent (LME) in China in 2023. This import gap is projected to widen over the next decade due to surging demand in China outpacing domestic supply growth.

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