Thursday, October 1, 2009

Dairy Production in India, China, & Russia does not Influence U.S. Prices

There are a few major milk producing countries that have not been analyzed in this blog, and there are good reasons why. As the graphs below are reviewed, the reasons will become obvious.


There are three major milk producers we have not discussed. The largest, by far, is India. China and Russia are also significant producers.


Fluid milk is not a good product for international trading. Milk is 88% water and has a relatively short shelf life. In the following charts, cheese and milk powder production are analyzed.


Cheese is the international currency of the global dairy industry. India has almost no cheese production at all and, for that reason, India has not been discussed as a player in the global dairy markets. While Brazil, Russia, China, and Canada have decent sized cheese production, it is consumed within their countries and they are not major exporters.

The picture changes when skim and whole milk powder are examined.



Skim milk powder has a long shelf life without refrigeration. It is often used in cheese manufacturing to boost protein. However, Skim milk powder has a very low value, typically just above the $.80/lb support prices. That limits the range for international shipments as shipping costs can easily outweigh other higher prices.

Now for the big surprise - Whole Milk Powder. China dominates this market. The U.S. is not really a player in this market. Fluid milk made from whole milk powder does not compare to real milk. The ready availablity of fluid milk in the U.S. leaves no significant market for whole milk powder. Because of the butterfat in whole milk powder, it must be refrigerated and does not have a long shelf life. Whole milk powder is used in cooking, but this is a very small market.



The focus in this blog is always cheese. The pricing formulas are all based heavily on cheese prices and Chicago Mercantile Exchange prices are based on supply and demand in the U.S. As has been demonstrated in some of the past posts, demand does not significantly fluctuate. However, imports and exports of cheese have a tremendous impact on cheese prices and those statistics are often driven by exchange rates.

This data was compiled from the 2009 Agricultural Statistical database compliled by the Organization for Economic Co-operation and Development (OECD) and the United Nation’s Food and Agricultural Organization (FAO).

In the next post, we'll get back to the basics for U.S. pricing. This post was only to review the global milk production and explain why the focus is not on some of the large milk producing countries.

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