European Dairy Market Overview on first half of may 2019

Report 19 – Released on May 9, 2019

WESTERN OVERVIEW

Milk production in Western Europe during 2019 so far has not met expectations. Nevertheless, Western European milk production continues inching up seasonally, with the seasonal peak usually occurring in May each year. Previously unexpected Western European milk production disappointments during early 2019 have been attributed to one factor or another. Now, one third of the way through the year, milk production is disappointing in terms of previously expected results.

Some dairy observers believe that the lingering effects of the drought last year in Germany and France were underestimated. Drought related dairy cow slaughter has not rebounded with herd increases as quickly as had been expected. Carryover feed crops are of lower quality, a factor attributed to growing stress during dry conditions. A contravening trend to disappointing milk production, helpful to dairy product production, is the continuing decline in sales of packaged fluid milk in Germany and other Western European countries. This is associated with the increase in sales of non-dairy beverages in those countries.

The declining sales of fluid milk result in additional milk being available for more profitable dairy manufacturing to partially offset lower milk production. While it may be normatively disappointing that nondairy sales increase while fluid milk sales decline, empirically, the result contributes to keeping dairy product manufacturers in the game meeting contract obligations at this time.

Ending April, weekly seasonal milk production increases in Germany and France were seen as barely noticeable. When March milk production data for the EU is final, few expect January- March production will be more than year ago for the period. One exception may be Ireland, where early observations unofficially expect milk production will show healthy advances over YTD 2018. Some observers are anticipating Q1 EU milk will be about 1 percent lower than Q1 2018. Overall 2019 milk production is still expected to be higher than 2018 production.

Demand for Western European cheese remains strong. However, lower than desired cumulative milk production so far this year in Western Europe is keeping cheese production lower than capacity and lower than desirable. Inventories and aging stocks continue to be poached to meet current demand and obligations. Most scheduled May production is already sold. Increased pricing for what is still available from scheduled June production is likely as sales are closed.

While the current pace of cheese production and sales can continue for a while, it is not a sustainable long-term proposition. Concern is ameliorated by projections from multiple and varied sources expecting higher milk production in the second half of the year. Cheese production will be a priority destination for the milk. The EU is very conscious of being the largest cheese exporting entity. Cheese manufacturers expect and intend to meet contractual obligations in furtherance of being a global cheese export leader.

EASTERN OVERVIEW

Czech Republic milk production through March this year was 0.6 percent higher than the same period of 2018 according to CLAL data provided to USDA. That contributed to increased butter production of 6.7 percent. Cheese production declined 2.0 percent and SMP production declined 9.9 percent.

Information for the period April 29 -  May 10, 2019, issued biweekly

     Published by:
     Dairy Market News - Madison, WI
     Eric Graf, 608.422.8590
     Email: Eric.Graf@usda.gov

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