China remains a significant importer of dairy products and, thus, an important customer for a domestic capacity-strapped U.S. dairy industry. But as time goes by, the domestic dairy industry in China continues to grow and expand. In 2018, for the first time in 10 years, China is expected to reduce the amount of imported dairy products.
Domestic fluid milk production is expected to increase by about 2.8% to 36.5 million tons, according to a USDA Foreign Agriculture Service GAIN report. For several years the Chinese dairy industry has made a concerted effort to improve the genetics of the national dairy herd, and it appears that the work is paying off as these cows are starting to hit their peak production. In addition, significant facility improvements have helped bolster production.
While the cattle and facilities are getting better, there is still room to grow. Strict environmental regulations, according to the GAIN report, have curtailed any significant expansion.
The Chinese milk price paid to producers is closely tied to world markets, the GAIN report says. Since world prices have started to recover, Chinese prices have started to recover as well. Margins are improving, too, as feed costs drop.
This production increase has caused USDA to drop projected imports to 520,000 tons, down from 575,000 in 2017 and 9% lower than 2016.
On the powder side, the GAIN report predicts domestic whole milk powder (WMP) production to increase 1.4%. Even though domestic production is expected to grow, it’s projected that China will increase imports by another 500,000 tons in 2018 due to a preference for imported over domestic products.
With regard to skim milk powder (SMP), of which the U.S. is a major supplier, the GAIN report says China will decrease imports due to growing domestic production and higher world prices. While China is a prime customer for U.S. SMP, market share has eroded over recent years due to greater competition from New Zealand, Australia and Germany.