China to import more milk powder

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While China is signaling a scaled-up need for milk powder imports, U.S. dairy producers shouldn’t expect much of a demand boost yet, economists say.

China’s Ministry of Commerce expects the country will import a total of 40,000 metric tons of milk powder, a 29 percent increase over 31,000 metric tons in December, according to a statement from the ministry earlier today. The ministry didn’t specify the sources of its imports.

Still, that increase is “kind of a drop in the bucket” compared with overall U.S. dairy exports, said Jim Dunn, an agricultural economist at Penn State University.

During the first 10 months of 2009, the U.S. exported 214,546 metric tons of skim dry milk powder, about 4,837, or 2.3 percent, of which went to China or Hong Kong, according to the U.S. Dairy Export Council.

New Zealand dominates the global export market  for whole milk powder, meaning China would have to ramp up imports significantly more to have an impact on U.S. prices, Dunn said.

“The potential is really there if China steps up,” Dunn said. Today’s announced increase “is not a significant amount. It would only be important if the number gets bigger. If we could increase (U.S.) exports by 10 percent or 15 percent, that would be helpful. If we could increase by 25 percent, that would really be helpful.”

New Zealand will account for nearly half of global whole milk powder exports in 2010, the U.S. Department of Agriculture estimated in a December report. The country’s exports are expected to rise 8 percent in 2010 over 2009 levels.

China is importing more milk powder following a 2008 scandal in which some domestically produced power was found to contain melamine, a chemical used in plastics and fertilizers. At least six Chinese babies died and about 300,000 were sickened by tainted milk, according to Business Report & Independent Online, a news site in Johannesburg, South Africa. More melamine-contaminated milk powder surfaced in December.

Whole milk powder imports into China grew “explosively” in 2009, reaching 165,000 metric tons, the USDA said in the December report. While 2010 imports may decline overall from the high levels in 2009, China “will remain a key purchaser” on world markets. China’s expected January imports include 3,000 metric tons of infant formula milk powder, the ministry said.

U.S. dairy producers have long eyed China as a potentially lucrative export market. As incomes and availability of milk grow, per capita dairy consumption is poised to increase 15 percent to 17 percent annually over the next several years, Chinese officials projected previously.

In the U.S., dairy prices have bounced back in recent months as the global economy improves, after slumping for much of 2009.

While the weighted average whole milk powder price, currently about $1.50 a pound, is down 7 percent so far in January, it still surged 95 percent over the last five months of 2009, according to Fonterra’s GlobalDairyTrade.

“A lot of supply-chain filling has been completed and we’re getting into more of a market balance now,” Paul Grave, manager of GlobalDairyTrade, said in a report on CME Group Inc.’s Web site.


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