Slight slowdown in milk production growth

Windhoek: While the Namibian dairy industry is struggling to keep its head above water without formal industry protection and in the face of massive SA dairy imports, milk production in South Africa during the first seven months of 2015 is 10,6 percent higher than the same period last year.

July 2015 production is 6,9 percent higher than July 2014, compared to monthly increases of between 9 percent and 13 percent in previous months, according to the August Key Market Updates provided by the SA Dairy Industry.

Higher grain prices, the expected increase in electricity cost, roughage availability, as well as lower quality silage and announced producer price decreases may contribute to a further slowdown in production growth.

According to the report, world prices increased during January and February, mainly as a result of uncertainty about New Zealand production. Since then prices decreased. At the latest Fonterra Global Dairy Trade internet sale held on 18 August prices increased by 14,8 percent, the first increase since the current downwards trend started in March 2015.

The increase in sale prices may be an early indicator that markets are worried about the supply of dairy products in coming months. However European intervention stocks remain high. Total imports during 2014 are 56 percent higher than the previous year with exports down 0.1 percent, resulting in net exports of 178-million litres milk equivalent, 34 percent down on 2013.

In most cases products are imported at prices substantially above average international prices and do not reflect the short-term decrease in import parity. Exports during the first six months of 2015 are marginally more than imports.

The global economy is growing, albeit with some uncertainty and with stronger growth in developed than in developing countries.

The International Monetary Fund (IMF) adjusted their global and South African growth forecasts for 2015 and 2016 downwards. Fiscal imbalances between developed and developing countries, in particular oil-exporting countries, combined with renewed global political uncertainty resulted in higher downside risk to economic growth.

The US economy shows signs of recovery with unemployment down to the lowest level since the recession. Despite negative sentiment, South African consumer debt decreased while disposable income grew by 5 percent. The South African economy grew by 1,3 percent in the first quarter of 2015, slowing down to -1,3 percent in the second quarter.

Retail sales of dairy products continue to grow at higher retail prices. Milk production during July was 236 million litres, 6,9 percent higher than in June 2014. Production during the first seven months of 2015 is 10,0 percent higher than during the same period in 2014.

Dairy imports

During 2014, dairy products equivalent to 253 million litres were imported, 56 percent up on 2013. Imports increased during 2014 to supplement local supply. In the first six months of 2015 dairy products equal to188-million litres were imported.

During 2014 dairy products equal to 431-million litres of milk were exported, the same as in 2013. January – June 2015 exports of 199-million litres were 0,4 percent lower than exports during the same period in 2014.

Cumulative net exports (total exports less total imports) on a milk equivalent basis are shown in Figure 5. South Africa re-established net exporter status from June 2012. During 2014 exports exceeded imports by 178-million litres, 34 percent down on the same period the previous year. Net exports equalled 6 percent of local production during 2014. Exports exceeded imports by 11-million litres in the first six months of 2015.

Total milk supply

The total supply, during 2014, remained at 2013 levels to September. Since then higher production and imports resulted in a small increase in the total supply. This was utilised by the market without creating surpluses.

The 10,6 percent higher production and lower net exports resulted in a total supply in January – June 2015 of 1418 million litres, 226 million litres more than during the same period in 2014.

Average producer prices increased marginally from September to December 2014, with only single isolated cases where prices were lowered during December. The stability of producer prices during the festive season showed that production and consumption were in balance until the end of 2014.

Although 2015 prices followed the same trend as in March to May 2014, prices decreased in June and July and will decrease further in August. Prices recovered since mid-2012 mainly as a result of the drought in the USA and positive demand growth in developing countries.

Cereal prices reacted to lower production and high demand. Dairy prices reacted positively to supply uncertainty in New Zealand. Prices for other commodities were slow to follow.

International dairy product prices decreased during 2014. Higher production in the Southern Hemisphere, resistance to record prices and the Russian ban on EU products were the main causes of this decrease.

Prices on the Fonterra global dairy trade trading platform increased slowly in December and January and accelerated to 10 percent growth by end February. As from March 2015, international prices continued to decrease to the lowest level in eight years.