Quarterly Canadian Dairy Update – Mar ’18
Executive Summary
Canadian milk sold off farm figures provided by Statistics Canada were recently updated with values spanning through the end of 2017. Highlights from the updated report include:
Milk produced within Canada supplies two markets – the fluid milk market, which includes milk used for direct consumption, creams and flavored milks, and the industrial milk market, which includes milk used to make dairy products including butter, cheese, milk powder, yogurt and ice cream. Throughout the first five months of the ’17-’18 production season, Canadian milk sold for industrial purposes increased 10.8% YOY, more than offsetting a 0.8% YOY decline in milk sold for fluid purposes. Over the past five years, the industrial milk market has accounted for just under two thirds of the total Canadian milk sold off farms. USDA is projecting a 3.7% YOY increase in Canadian milk production throughout the 2018 calendar year, aided by additional production quotas which were put in place in an attempt to meet increasing domestic dairy demand.
Canadian milk production has increased significantly over recent years despite milk cow figures remaining at or near the lowest figures on record. The Canadian milk cow herd has plateaued over the last several years following significant declines experienced since the beginning of the Canadian dairy supply management system. USDA is projecting the Canadian milk cow herd to finish flat throughout 2018, remaining at the record low levels experienced throughout 2016 and 2017.
Because of the close proximity of the two countries, the U.S. has been the largest trade partner for both Canadian exports and imports of dairy products over the past several years. Canada has traditionally been a net importer of dairy products, despite heavy import tariffs, with the majority of import volumes originating from within the United States. Overall, Canada has been the third largest importer of U.S. dairy products over recent years, trailing only Mexico and China. Throughout 2016, the U.S. accounted for over half of Canada’s dairy import volumes, significantly outpacing import volumes originating from within New Zealand, several European countries and Argentina.
Canadian net dairy imports have traditionally been led by butter and cheese, while Canada has remained a net exporter of skim milk powder/nonfat dry milk. Canadian SMP/NFDM export volumes increased significantly throughout 2017, aided by the introduction of newly created class of milk. In Mar ’17, Canada created a Class 7 milk class to price products including protein concentrates, skim milk powder and whole milk powder. The newly created milk class is priced at the lower of skim milk powder or whole milk powder prices observed throughout major dairy exporting regions, effectively guaranteeing that Canadian product will always be competitive globally. USDA expects Canadian SMP/NFDM export volumes will continue to grow throughout 2018, breaking the record high levels reached throughout 2017.
U.S. – Canada combined net trade of butter, cheese and SMP/NDFM has declined 35.2% throughout the first half of the ’17-’18 production season, driven lower by reduced U.S. export volumes of butter and cheese destined to Canada. U.S. exports of butter destined to Canada reached record high levels throughout 2017 as additional Canadian butter import permits were issued in an attempt to ease the largest domestic butter deficit on record. Canadian butter markets are expected to be more balanced throughout 2018 as additional efforts to ramp up production have taken place. USDA projects Canadian butter production will increase 5.8% YOY throughout 2018, finishing 36.6% above 2016 levels.
Strong Canadian exports of SMP/NFDM are expected to contribute to stocks being drawn down to an 11 year low throughout 2018, however 2018 Canadian ending stocks of butter and cheese are expected to reach record high levels according to USDA, driven higher by increased production volumes.
- Canadian milk sold off farms has increased on a YOY basis over 43 consecutive months through the end of 2017. ’17-’18 YTD sales are up 6.8% YOY throughout the first five months of the production season, on pace to reach a record high level for the fourth consecutive year.
- Although Canada remains a net dairy importer, exports of skim milk powder/nonfat dry milk reached a record high level throughout 2017 while additional gains are expected throughout 2018 according to USDA. U.S. – Canada combined net trade of butter, cheese and nonfat dry milk has declined 35% throughout the first half of the ’17-’18 production season, driven lower by reduced U.S. export volumes of butter and cheese destined to Canada.
- Strong Canadian exports of skim milk powder/nonfat dry milk are expected to contribute to stocks being drawn down to an 11 year low throughout 2018, however 2018 Canadian ending stocks of butter and cheese are expected to reach record high levels according to USDA.
Milk produced within Canada supplies two markets – the fluid milk market, which includes milk used for direct consumption, creams and flavored milks, and the industrial milk market, which includes milk used to make dairy products including butter, cheese, milk powder, yogurt and ice cream. Throughout the first five months of the ’17-’18 production season, Canadian milk sold for industrial purposes increased 10.8% YOY, more than offsetting a 0.8% YOY decline in milk sold for fluid purposes. Over the past five years, the industrial milk market has accounted for just under two thirds of the total Canadian milk sold off farms. USDA is projecting a 3.7% YOY increase in Canadian milk production throughout the 2018 calendar year, aided by additional production quotas which were put in place in an attempt to meet increasing domestic dairy demand.
Canadian milk production has increased significantly over recent years despite milk cow figures remaining at or near the lowest figures on record. The Canadian milk cow herd has plateaued over the last several years following significant declines experienced since the beginning of the Canadian dairy supply management system. USDA is projecting the Canadian milk cow herd to finish flat throughout 2018, remaining at the record low levels experienced throughout 2016 and 2017.
Because of the close proximity of the two countries, the U.S. has been the largest trade partner for both Canadian exports and imports of dairy products over the past several years. Canada has traditionally been a net importer of dairy products, despite heavy import tariffs, with the majority of import volumes originating from within the United States. Overall, Canada has been the third largest importer of U.S. dairy products over recent years, trailing only Mexico and China. Throughout 2016, the U.S. accounted for over half of Canada’s dairy import volumes, significantly outpacing import volumes originating from within New Zealand, several European countries and Argentina.
Canadian net dairy imports have traditionally been led by butter and cheese, while Canada has remained a net exporter of skim milk powder/nonfat dry milk. Canadian SMP/NFDM export volumes increased significantly throughout 2017, aided by the introduction of newly created class of milk. In Mar ’17, Canada created a Class 7 milk class to price products including protein concentrates, skim milk powder and whole milk powder. The newly created milk class is priced at the lower of skim milk powder or whole milk powder prices observed throughout major dairy exporting regions, effectively guaranteeing that Canadian product will always be competitive globally. USDA expects Canadian SMP/NFDM export volumes will continue to grow throughout 2018, breaking the record high levels reached throughout 2017.
U.S. – Canada combined net trade of butter, cheese and SMP/NDFM has declined 35.2% throughout the first half of the ’17-’18 production season, driven lower by reduced U.S. export volumes of butter and cheese destined to Canada. U.S. exports of butter destined to Canada reached record high levels throughout 2017 as additional Canadian butter import permits were issued in an attempt to ease the largest domestic butter deficit on record. Canadian butter markets are expected to be more balanced throughout 2018 as additional efforts to ramp up production have taken place. USDA projects Canadian butter production will increase 5.8% YOY throughout 2018, finishing 36.6% above 2016 levels.
Strong Canadian exports of SMP/NFDM are expected to contribute to stocks being drawn down to an 11 year low throughout 2018, however 2018 Canadian ending stocks of butter and cheese are expected to reach record high levels according to USDA, driven higher by increased production volumes.