China Dairy situation update

The USDA GAIN report (available here) gives some insight in to what is going on in China - and it is basically pretty good news.

The report shows that dairy cow numbers in China are expected to drop by 1m cows in 2017 to 7m and that China milk production will drop by about 58m KgMS (2%) and that this will be made up from UHT imports from NZ and the EU and WMP from NZ.  UHT imports are expected to increase by 38% and WMP imports are forecast to increase to 460,000 tonnes (up 23% on 2016 and the highest level since the record 622,000 tonnes in 2013).

The report says that China cow numbers are falling because of the relatively low local milk price, and the fact that dairy companies can import WMP (and recombine it to make fresh milk) for less than the cost of buying local fresh milk. Seems all the reserves of WMP are gone.

The farmgate Milk price in China is currently around NZD 9.68/KgMS (down from $10.97 12 months ago). EU farm gate milk prices have also fallen as shown below, while US prices have increased slightly.

NZD/KgMS (energy corrected milk)

Dec 16 US$7.20 EU$5.68
Dec 15 US$7.05 EU$6.74

USDA figures also show that US milk production costs are around $6.78/KgMS (including feed costs of $4.54/KgMS) so there is not a lot of profit at their current farm gate milk price.

What this all means for NZ farmers and NZ dairy farm investments is unclear but it is another sign that the important supply and demand balance is in our favour again after a two year hard slog.