The Outlook blog

What we're seeing - 11 October 2017

In its October Short-Term Outlook, the European Commission projects a 0.7% growth in EU-28 milk deliveries this year, and 1.4% growth for 2018 – reaching 166.2bn litres. Growth is expected to come from higher average yields, as cow numbers are tipped to fall 1.2% in 2017 and another 0.8% next year to 23m at the end of 2018.

Looking back over the last few years – and for all the discussion about low prices and policy measures, the contraction in EU milk production has been very transitory – and the recovery is well underway. In fact, looking over the past few years EU milk output has hardly skipped a beat.

EU drinking milk output is expected to decline 1.3% this year and 1% in 2018, continuing its long-term negative trend, and increasing “manufacturing” milk availability. The Commission is betting on robust domestic demand and healthy exports to absorb increased milk output in the coming 18 months.

SMP exports are tipped to reach an all-time high of 776,000t in 2017 coming off a weak base, before setting a new record in 2018 of 822,000t. Intervention SMP stocks are projected at 200,000t at the end of 2018.

Despite achieving practically no sales of its massive intervention SMP stockpile over the past 12 months, the Commission is confident surging exports, combined with more milk directed to domestic cheese rather than powders, will allow a drawdown of 150,000t of public SMP stocks by the end of 2018. That will be a neat trick.

Chart of the week

The Commission expects cheese output is projected to rise 1.9% in 2017 with a similar expansion rate next year to service robust domestic demand. SMP production is expected to drop, as intervention stocks pressure prices, but rise 2% in 2018. As a reult, butte output will also be down, keeping inventories tight.

This is our take on what’s happening in Australian, New Zealand and global dairy markets based on our weekly Dairyglobe newsletter. Interested in subscribing to the Dairyglobe? Contact our office on or +613 8414 0904 or read more here!

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