China’s milk powder buying, one of the most important drivers of dairy values, will improve next year – but not by much, and to nowhere near 2013 and 2014 levels which sent markets soaring.
The US Department of Agriculture’s Beijing bureau, in its first forecast for Chinese whole milk powder imports in 2016, pegged than at 400,000 tonnes.
That would be above the level of this year, which it forecast at 350,000 tonnes – a downgrade of 50,000 tonnes on the USDA’s official estimate.
However, it would be well below levels which soared above 600,000 tonnes in both 2013 and 2014, helping lift dairy prices worldwide.
“The new import environment reflects a dramatic change from an import surge that occurred from October 2013 through May 2014,” the bureau said.
The great unanswered question in the dairy market is the exact size of whole milk powder inventories in China.
The 2013-2015 peak in Chinese buying led to a backlog of inventory in Chinese warehouses.
These heavy supplies will continue to weigh on Chinese import demand, as long as they remain in place.
The USDA’s Beijing bureau saw 2016 milk powder stocks at 89,000 tonnes, the lowest level in four years.
Indeed, it said that the expectation of higher imports next year reflected ideas of “Chinese dairy companies [will] draw down carryover stocks through the end of 2015”.
Debate on stocks
But the real size of the inventories remains up for debate.
Last month, Macquarie estimated current Chinese inventories at 300,000 tonnes.
“The key catalyst for whole milk powder prices in the near term will be the clearing of inventory in China,” the bank said.
Powder production still rising
And internal market dynamics will do little to shift that inventory, as the total milk supply, including imports and domestic consumption, matches demand.
Chinese milk powder production is forecast to rise, even as consumption remains stagnant. The increase is being driven by record liquid milk production.
“Processors continue to turn unutilized fluid milk into powder as the most economical way to deal with this surplus,” the report said.
Whole milk powder production was forecast at 1.5m tonnes next year, as a domestic surplus of liquid milk encourages suppliers to “bank” powdered milk.
“Large dairy companies will continue to turn additional milk into powder to store and reduce losses.”
Another driver of whole milk powder production is a lack of refrigerated supply chains from China’s main milk producing regions in the north, to the main consumption areas in the south and east, encouraging the use of reconstituted milk from powder.
Overall, Chinese whole milk powder consumption was seen at 1.9m tonnes in 2016, below official USDA estimates for 2015.
(Source – http://www.agrimoney.com/news/chinese-dairy-imports-to-rise-in-2016—but-not-by-much–9038.html)