The Canadian dairy sector has lots to look forward to in 2017. The softer prices in 2015 and 2016 have subsided and production is now responding to strong consumption trends.
Here are the three factors driving that strong outlook:
1. A positive shift in Canadians’ preferences for dairy products
Year-over-year (YOY) butterfat usage across all milk classes has increased 3.5% (equivalent to 11.6 M kg BF) at the national level. Dairy did well at the retail level: YOY total butter consumption increased 4.4% while total cheese consumption was up 5% in 2016 over 2015 levels. That’s impressive growth.
The upward trend is mostly thanks to stronger consumer preferences for dairy products, in part because of 2016’s lower retail prices.
2. Dairy revenues are projected to increase
Dairy production growth is expected to raise 2017 cash receipts as will easing pressures on the milk price – pressures that first appeared in the second half of 2014.
Recent growing demand for butterfat resulted in a surplus of skim milk. Surpluses of non-fat solids generally command a lower price because they are often marketed in lower-value milk classes. New strategies have resulted in less skim milk to be sold in lower-value classes. For example:
- In the 2014-15 dairy year, Class 4m marketing of non-fat solids = 11.1% of all milk (when estimated at standard composition).
- In the 2016-17 dairy year-to-date, Class 4m marketing of non-fat solids = 7.6% of all milk.
3. The world dairy market is improving
Despite the USDA projected 2.4% increase to U.S. milk production in 2017, production in New Zealand and the EU, two of the world’s most important producers, continues to decline. That has helped push the world price of non-fat skim milk almost 20% higher in 2017 compared to the 2016 average.
Even with those increases, the price remains below the 5-year average – so there’s still some room for growth. That’s great news for Canada, where as much as 19% of milk production (when estimated at standard composition) is marketed in Class 5, a class priced competitively to world market conditions.
The bottom line
Strengthening per-unit milk revenues in 2017 won’t lessen the need for management skills. They’ll be as important as ever to find success in the new market environment. A focus on lowering production costs and growing butterfat yield will be the best bet to take advantage of 2017’s positive market outlook.