World dairy prices are feeling pressure from a number of forces, including declining consumption in major markets such as China and Russia. Increasing global production of milk supplies has also pushed prices down significantly from their highs in early 2014. Although butter and cheese world prices fell the most so far in 2016, milk powders have seen the largest decline since 2014.
World dairy prices are increasingly impacting Canadian dairy producers. And right now, with low global prices, the impact is negative as nearly 20% of Canada’s 2016 milk production (when evaluated at standard composition) can be priced at or below world prices.
Sold as either butterfat or "non-fat milk solids” (SNF), milk components are marketed in different classes at different prices. Most of these prices are determined in Canada. Some Canadian milk components however, marketed at world prices, are used in dairy products that are either exported or are further processed to compete with imports for Canadian consumers.
Right now, there are domestic and global surpluses of SNF (to understand why, see FCC Ag Economics Dairy Sector Report PDF (61 KB)). Some excess SNF in Canada are marketed for use in animal feed and command a lower price than the SNF used domestically to produce cheese or yogurt.
No short-term relief from low world milk prices expected
International prices are expected to remain low, as production in traditional suppliers (i.e., the U.S. and Europe) increases. Production is also likely to increase in non-traditional suppliers, such as Asia and Eastern Europe. Theexpects low prices to drive global import growth of 1.5% in 2016. But that won’t be enough to lift world dairy prices, which on average are expected to be 24% lower in 2016 compared to 2015.
But there’s good news
Even with the price pressure, Canada’s dairy producers continue to manage these competitive pressures by finding efficiencies within their own operations. Pursuing efficiency through better management and higher productivity can be achieved by dairy operations of all sizes.
And that will support a healthy dairy sector in the long-term.