Quarterly Canadian Milk Production Update – Dec ’19
Executive Summary
Canadian milk production figures provided by Statistics Canada were recently updated with values spanning through the end of the first quarter of the ’19-’20 production season. 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. Over the past five years, the industrial milk market has accounted for two-thirds of the total Canadian milk sold off farms. Throughout the first quarter of the ’19-’20 production season, Canadian milk sold for industrial purposes has increased 2.6% YOY, more than offsetting a 0.9% YOY decline in milk sold for fluid purposes.
Canadian milk production has reached record high levels 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. Statistics Canada shows the Canadian milk cow herd declining slightly on a YOY basis as of Jul 1st, 2019, but remaining 1.3% above three year average figures.
Overall, the Canadian milk cow herd is equivalent to just over 10% of the total U.S. milk cow herd. When compared on a state-by-state basis, the Canadian milk cow herd is equivalent to approximately 55% of the California milk cow herd and 75% of the Wisconsin milk cow herd.
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 finished as the second largest importer of U.S. dairy products throughout 2018, trailing only Mexico.
Throughout 2018, the EU-28 accounted for 55% of Canada’s dairy import volumes (up 14% from the previous year), while the U.S. had a market share of 43% (down 14% from the previous year). The EU-28 market share of Canadian dairy import volumes outpaced the U.S. market share of Canadian dairy import volumes for the first time on record throughout 2018.
Canadian net dairy imports have traditionally been led by butter and cheese, while Canada has traditionally remained a net exporter of skim milk powder/nonfat dry milk (SMP/NFDM). Canadian SMP/NFDM export volumes increased significantly throughout 2017, aided by the introduction of the newly created Class 7 milk pricing scheme used to price skim milk powder, milk protein concentrate and infant formula. The Class 7 milk pricing scheme priced the products 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.
The USDA expects Canadian net exports of SMP/NFDM will decline to a four year low level throughout 2020, added by the eliminating of the Class 7 milk class as part of the United States-Mexico-Canada Agreement (USMCA). Under the USMCA, Canadian skim milk powder, milk protein concentrate and infant formula will be priced at U.S. nonfat dry milk price levels instead of the lowest of prices experienced throughout the major dairy exporting regions. The Canadian Class 7 milk class must be eliminated six months after the agreement is signed into order. In addition to abolishing Canada’s Class 7 milk class, the United States-Mexico-Canada Agreement also provides U.S. producers with access to approximately 3.6% of Canada’s dairy market under a tariff-free quota, up from the existing level of approximately 1.0%.
The U.S. House of Representatives has passed the USMCA with bipartisan support while Senate approval is expected during the early months of 2020. Mexico has ratified the USMCA however Canada’s Parliament likely won’t introduce legislation to ratify the agreement until convening on January 27, 2020.
- Canadian milk sold off farms increased on a YOY basis for the third consecutive month during Oct ’19, finishing up 2.2%. ’19-’20 YTD Canadian milk sold off farms has increased 1.5% YOY and is on pace to reach a record high annual level.
- 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. Statistics Canada shows the Canadian milk cow herd declining slightly on a YOY basis as of Jul 1st, 2019, but remaining 1.3% above three year average figures.
- The USDA expects Canadian net exports of skim milk powder/nonfat dry milk will decline to a four year low level throughout 2020, added by the eliminating of the Class 7 milk class as part of the United States-Mexico-Canada Agreement (USMCA). Under the USMCA, Canadian skim milk powder, milk protein concentrate and infant formula will be priced at U.S. nonfat dry milk price levels instead of the lowest of prices experienced throughout the major dairy exporting regions.
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. Over the past five years, the industrial milk market has accounted for two-thirds of the total Canadian milk sold off farms. Throughout the first quarter of the ’19-’20 production season, Canadian milk sold for industrial purposes has increased 2.6% YOY, more than offsetting a 0.9% YOY decline in milk sold for fluid purposes.
Canadian milk production has reached record high levels 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. Statistics Canada shows the Canadian milk cow herd declining slightly on a YOY basis as of Jul 1st, 2019, but remaining 1.3% above three year average figures.
Overall, the Canadian milk cow herd is equivalent to just over 10% of the total U.S. milk cow herd. When compared on a state-by-state basis, the Canadian milk cow herd is equivalent to approximately 55% of the California milk cow herd and 75% of the Wisconsin milk cow herd.
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 finished as the second largest importer of U.S. dairy products throughout 2018, trailing only Mexico.
Throughout 2018, the EU-28 accounted for 55% of Canada’s dairy import volumes (up 14% from the previous year), while the U.S. had a market share of 43% (down 14% from the previous year). The EU-28 market share of Canadian dairy import volumes outpaced the U.S. market share of Canadian dairy import volumes for the first time on record throughout 2018.
Canadian net dairy imports have traditionally been led by butter and cheese, while Canada has traditionally remained a net exporter of skim milk powder/nonfat dry milk (SMP/NFDM). Canadian SMP/NFDM export volumes increased significantly throughout 2017, aided by the introduction of the newly created Class 7 milk pricing scheme used to price skim milk powder, milk protein concentrate and infant formula. The Class 7 milk pricing scheme priced the products 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.
The USDA expects Canadian net exports of SMP/NFDM will decline to a four year low level throughout 2020, added by the eliminating of the Class 7 milk class as part of the United States-Mexico-Canada Agreement (USMCA). Under the USMCA, Canadian skim milk powder, milk protein concentrate and infant formula will be priced at U.S. nonfat dry milk price levels instead of the lowest of prices experienced throughout the major dairy exporting regions. The Canadian Class 7 milk class must be eliminated six months after the agreement is signed into order. In addition to abolishing Canada’s Class 7 milk class, the United States-Mexico-Canada Agreement also provides U.S. producers with access to approximately 3.6% of Canada’s dairy market under a tariff-free quota, up from the existing level of approximately 1.0%.
The U.S. House of Representatives has passed the USMCA with bipartisan support while Senate approval is expected during the early months of 2020. Mexico has ratified the USMCA however Canada’s Parliament likely won’t introduce legislation to ratify the agreement until convening on January 27, 2020.