Milk Market Observatory REP.News

27 May 2014

o The first meeting of the Milk Market Observatory economic board took place on 27 May April 2014.

It gathered market experts of the organisations representing all steps in the milk supply chain: CEJA (young farmers), COPA COGECA (producers and cooperatives), ECVC (Via Campesina), EMB (European Milk Board), EDA (dairy industry), Eucolait (dairy trade) and Eurocommerce (retail).

o The meeting was opened with presentations by DG AGRI on the milk market situation1, short and

medium term outlooks2. Afterwards the floor was

given to market experts who assessed market developments.

o There has been increasing downward pressure on milk prices since March because of increased

supply in main producing regions (EU, US, NZ).

Since the EU and the US passed the seasonal production peak, prices are expected to find a new balance at reasonably high levels in the second half of the year.

o Milk yields have been generally increasing over the last years because of feeding and breeding developments. This has translated into lower fat

content in milk.

o Around 8 mio t more milk might be delivered in 2014 in the main producing MS (subject to uncertainties about weather, cereal prices and new CAP implementation).

o EU milk collection increased considerably in Q1 of

2014, although there is a statistical effect due to the unusual low volumes of Q1 2013. In absolute terms, milk production was nevertheless at the highest level ever.

o The main reasons for the increase in production are: high milk prices, lower feed prices, good

1

See latest Market situation fact-sheet on http://ec.europa.eu/agriculture/milk-

market-observatory/pdf/market-situation-presentation_en.pdf

2

See annex

forage, favourable weather conditions, and the forthcoming expiration of the milk quota system in

April 2015.

o As a consequence of the high milk output processing capacities in the EU reached saturation, especially drying towers, putting downward pressure on spot milk and cheese prices (all the more after two towers went out of service in Germany).

o Some EU SMP stocks have built up, but most of them are committed, and world demand remains strong. There are also some cheese stocks. Concerns about political developments with Russia were expressed. Butter stocks are at normal levels, to cover the expected demand in the

second half of the year.

o Investments in the dairy industry are taking place and, next year, the processing capacity (especially for SMP and cheese) should increase.

o Global demand remains strong, with China and Russia being the main drivers. Local production is insufficient in both markets. But peaks in

consumption on these markets and in production in exporting countries don't necessarily coincide in time.

o There are also good export prospects to North Africa and the Middle East, where stocks are normal to low. High prices for dairy products are making buyers wait for them to go down or opt for

substitute (vegetal fat based) products.

o The positive trade figures of Q1 should be treated cautiously, and not be extrapolated for the rest of the year.

o In crisis times, consumers opt for less elaborated products such as butter and cream. Dairy fat has

also regained attractiveness relative to palm oil. Yoghurt consumption, on the contrary, is declining.

– -

MMO Economic Board

Last update : 04.06.2014

ANNEX

Short and Medium-term prospects for EU dairy markets Milk market observatory 27 May 2014 Sophie Hélaine

European Commission

1

Short and Medium-term

prospects for EU dairy markets

Milk market observatory

27 May 2014

Sophie Hélaine

European Commission

2

Short term outlook

• EU Short Term Outlook

• Recent years and orientation for near future

• Last version published in Feb. 2014

• Next version to be published in July 2014

• Based on Eurostat figures

• For the historic figures: based on 'Milk collection (all milk) and products obtained'

• To estimate 2013: based in the monthly survey on cow milk collection in dairies

• This info is completed by information on milk collection available on websites for NL, DK, FR, UK.

• Beware:

- Many figures need to be estimated as many MS figures are not displayed because of confidentiality

- Definition and the used database matter!

3

Preliminary forecasts: milk collection development by MS

-4%

-2%

0%

2%

4%

6%

13/12e 14/13f 15/14f

Source: DG Agriculture and Rural development forecasts

4

Preliminary forecasts: Herd development – dairy cows

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

EU-28 EU-15 EU-N13

12/11

13/12

14/13 f

15/14 f

Source: DG Agriculture and Rural development forecasts

5

Herd development – dairy cows

-6%

-4%

-2%

0%

2%

4%

6%

8%

DE FR PL IT UK NL RO IE ES DK AT BE

12/11

13/12

Source: DG Agriculture and Rural development based on Eurostat and ISTAT

6

Preliminary forecasts: Yield development – dairy cows (t/cow)

Source: DG Agriculture and Rural development forecasts

6.44

7.12

4.36

6.59

7.18

4.61

6.78

7.38

4.74

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

EU-28 EU-15 EU-N13

2011

2012

2013e

2014f

2015f

7

Estimated yield by MS in 2013 (kg/cow)

3000

4000

5000

6000

7000

8000

9000

2012 2013e

Source: DG Agriculture and Rural development estimates, calculated as Dairy cow milk collection of year N divided by the number of dairy cows in Dec. Year N

8

Preliminary forecasts 2014/2013: Change in production of dairy products

Source: DG Agriculture and Rural development forecasts

9

Main opened questions

• Regarding the inventory: • Will the number of dairy cows increase again in the EU-15 in 2014?

• Where are the major potential gains in yield?

• Regarding milk deliveries • How do you reach a lower fat content (like in 13/14 for DE, DK, NL, LU,

LV)? What about 14/15?

• Ability of NL, PL, AT, DK to hit the quota again in 14/15?

• Do you have more insights on FR, ES, IT and IE?

• Regarding dairy products: • Why is yoghurt production going down (-2.7% 1Q 2014 vs 2013)?

• Do you believe in the forecasted butter production increase (+2.5% in 2014/2013)? For the domestic market or export opportunities?

• What is produced when all SMP, WMP and Whey powder capacities are saturated?

• Till March EU exports to Russia are good. Is it going on like this?

10

Medium-term projections

11

Highlights of the medium-term projections

• A favourable medium-term outlook for milk and dairy products driven by dynamic world and domestic demand supporting firm prices.

• A limited EU milk production expansion after the end of the quota system after 2014/15 because:

• Cheese production is expected to absorb most of the additional milk delivered to dairies.

11

12

China's share in world milk powder imports

0

50

100

150

200

250

300

0%

5%

10%

15%

20%

25%

30%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

FAO nominal price index

2002-04 = 100 % of world total

Source: OECD-FAO agricultural Outlook, 2013 update based on GTA and FAO

Chinese imports

Dairy price index

13

EU milk deliveries and dairy herd developments

13

0

5

10

15

20

25

30

35

40

45

50

70

90

110

130

150

1702005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

Num

ber

of

dairy c

ow

s (

million

heads)

Milk p

roduction a

nd d

eliveries

(million t

)

Milk deliveries

Quota (deliveries)*

EU-N13

EU-15

* In Romania, Bulgaria and Croatia for the years prior to accession the quota is set at the level of the first year of accession

14

Milk price outlook (EUR/t)

200

250

300

350

400

450

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

Note: Price projections based on stochastic analysis developed and ran by JRC-IPTS

EU milk equivalent support price

EU milk market price

14

15

Examples of milk price uncertainty (EUR/t)

200

250

300

350

400

450

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

Note: Price projections based on stochastic analysis developed and ran by JRC-IPTS

EU milk equivalent support price

EU milk market price

90th percentile

10th percentile

15

16

Thank you

All comments are welcome by 11 June sophie.helaine@ec.europa.eu

• Short-term outlook (next edition to be published early July):

http://ec.europa.eu/agriculture/markets-and-prices/short-term-outlook/index_en.htm

• Medium-term outlook

http://ec.europa.eu/agriculture/markets-and-prices/medium-term-outlook/index_en.htm