Milk production figures show strong market growth

Milk production during February 2012 is 5.4% up from February 2011. However, if the effect of the leap year is excluded, production actually increased by 1.8% compared to a 0.7% decrease in January 2012.

Since the previous issue of market signals, there were further reports of producer price increases. While the increase in producer prices brings some relief to farmers, it will probably not result in a sharp increase in production in the coming autumn and winter.

Higher production in Oceanic countries and prospects of higher European production, as well as weak demand in developed countries, had a negative effect on international product prices. International producer prices were slightly down in December, compared to the same month last year, mainly caused by rand strength, with the exception of US prices (23% increase).

The total imports during 2011 increased by 23% and the total exports by 39%, resulting in a slight increase in net imports. Exports grew steadily during 2011 and indications are that this will continue. In January 2012 dairy products equivalent to 15.7-million litres were imported and 9.7-million litres exported.

Outlook

Internationally higher production in 2011 did not result in higher stocks, as exports increased substantially. However, higher production and weak demand combined, especially in developed countries, had a negative effect on product prices. Demand in developing countries, although still strong, has also slowed down somewhat.

The increase in milk production is largely taken up by increased exports from producing countries. Prices are expected to move sideways to slightly downwards in the coming months. Further exports growth is expected. European intervention stocks are at very low levels. Although prices are currently below the 2008 peak, prices are still substantially higher than during the recession.

Global financial uncertainty remains but the sharp growth in demand, especially in Asian countries, will exceed any possible reduction in First World demand. Global long-term expectations remain positive, albeit with some downside uncertainty.

In South Africa, milk production has passed its peak and is now on the downwards phase of the cycle. Production during the coming autumn and winter will probably not exceed production during 2011. There are concerns about the availability of maize until harvest time and uncertainty about the size of the current maize crop. Steady demand growth will put further pressure on dairy supplies.