Report Highlights:

As Mexico is expecting a recovery in milk production in MY2016, the consumption of fluid milk is decreasing while demand for specialized products is a growing trend among consumers. Specialized dairy products continue gaining domestic market share and greater volumes of fluid milk are being directed to processing use. Cheese consumption is expected to be stable and so imports are expected to slightly increase. Imports of powdered milk are expected to be maintained as demand from processors is sustained.

Dairy, Milk, Fluid

Production:

The Post MY2016 (January to December) fluid milk production forecast is 12.01 million metric tons (MMT), which is up 1.5 percent from the revised MY2015 estimate, based mainly on medium term trends in improved genetics and technology that continue to lift Mexican milk production. Current international milk prices are low due to the contraction in global demand for dairy products and are affecting the domestic sector. The world dairy market is expecting a general recovery by the second half of 2016 and Mexico is no exception. Moreover, the recent signing of the Trans Pacific Partnership Agreement (TPP), which may present a full set of challenges for the dairy sector, is enticing producers to quickly and efficiently address infrastructure improvements and to lobby for legislative and public policy changes that result in more monetary support to guarantee the survival of the sector. Undoubtedly, addressing these issues would allow the dairy sector to be competitive against dairy exporting TPP member countries that produce at lower costs. To accomplish this objective, private sources have indicated that the sector has 24 months to modernize and they are confident they will achieve this goal. However, the sector is aware that only three percent of domestic producers are currently able to compete in the international arena.

Mexico has four different production modes:

  • Intensive production, 20-27 liters per day/cow and a milking period of 305 days.
  • Semi-intensive production, 18-20 liters per day/cow, 280-305 days of milking.
  • Backyard/household production, 16 liters per day/cow and 225-300 milking days.
  • Double purpose production, 3-9 liters per day/cow, 120-180 milking days.

Currently, the sector is looking to further develop the productivity of small producers and their presence in the market to increase the volume and quality of milk produced. The average domestic cost of production is $5.45 pesos (USD $ 0.33) per liter but given that the majority of inputs used in animal feed are imported, the world's excess supply of dairy products and the lack of distribution channels in Mexico are factors that could increase this cost. The new Post fluid milk production estimate for MY2015 is revised upward given the above mentioned factors and due to LICONSA's increased price paid to producers, which is enticing increased production in 2015. MY2014 production figures were kept unchanged.

Consumption:

The Post MY2016 total fluid milk consumption forecast (domestic and factory use) is 12.04 MMT, up 1.5 percent from the 2015 USDA estimate, based on anticipated slightly higher production levels. The industry confirms that the consumption of value-added products by middle and upper income consumers and sustained support from LICONSA for lower income consumers is an ongoing trend. Nevertheless, the same sources confirm that the consumption of fluid milk is decreasing. The Post MY2015 total fluid milk consumption estimate is revised upward as the increased demand by the industry (factory use to prepare value-added products) has grown while keeping domestic fluid milk consumption in check. MY2014 figures were kept unchanged.

The dairy processing industry continues to respond to increased demand for specialized products, such as Greek yogurt, lactose-free, high-calcium, and even reduced fat fluid milk products. Consequently, specialized dairy products continue gaining domestic market share and greater volumes of fluid milk are being directed to processing use. Together, all of this demonstrates the growth in disposable income among middle to high-end consumers and their concerns about obesity compelling them to focus more on foods with nutritional and functional benefits.

Prices:

In July 2015, LICONSA announced that the price of milk distributed to low-income households will be raised one peso (U.S. $0.061) per liter for a final price of 5.50 pesos (U.S. $0.33). However, LICONSA announced that the price of milk distributed to low-income households in the states of Oaxaca, Chiapas, and Guerrero will be kept unchanged at a final price of 4.50 pesos (U.S. $0.27). According to official information from LICONSA, the daily distribution of fluid milk totals 3.1 million liters in 1,949 municipalities across the country under the provisions of 33 Social Supply Programs. This represents 10.2 percent of domestic production.

Trade:

The new Post MY2016 import forecast is 42,000 MT, similar to the revised MY2015 estimate, based on the forecasted increase in domestic production and stable demand from the processing industry. Also, LICONSA plans to purchase more domestic products rather than imported products. The government notes that this fits with the medium to longer-term goal of the current administration. The Post MY2015 import estimate was revised slightly upward due to the sustained demand from the processing sector. MY2014 fluid milk import figure was kept unchanged, per official data.

The Post MY2016 fluid milk export forecast is expected to be equal to the MY2015 estimate, at 12,000 MT, as sustained demand from the industry reduces product availability for export, especially given less attractive international prices. Post's MY2015 and MY2014 export estimate were kept unchanged.

Policy:

Mexico's sanitary and commercial authorities are discussing the development of several Mexican Official Norms to establish provisions and requirements for milk powder, cheese, and food preparations, with which domestic or imported products must comply. Among the most important topics in the proposals is the need to establish sanitary and physical-chemical specifications. The timeframe indicates that these documents or their drafts are to be published by the end of 2015.

Marketing:

The Mexican food industry has been growing rapidly and is the primary driver of demand contributing to the growth in U.S. exports. Mexico continues to be one of the largest destinations for imported dairy products, with the United States being its largest supplier. Strong investment in the processed food and retail sectors has led to a constant growth in demand for dairy products, such as dairy ingredients, fluid milk, cheese, yogurt, and frozen dairy desserts, among others.

In Mexico, between Lala and Alpura, the top producers of fluid milk and dairy products, there is competition to launch more innovative products geared toward more specific segments of the market to gain market share. Consumers are becoming more conscious of what they buy and eat and they are willing to pay more for better quality dairy products. In 2014 and 2015, Greek yogurt continues to be a fast growing category.

Dairy, Milk, Fluid

2014

2015

2016

Market Begin Year

Jan 2014

Jan 2015

Jan 2016

Mexico

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Cows In Milk

6350

6350

6400

6400

0

6450

Cows Milk Production

11464

11464

11680

11682

0

11857

Other Milk Production

160

160

160

160

0

160

Total Production

11624

11624

11840

11842

0

12017

Other Imports

35

35

40

42

0

42

Total Imports

35

35

40

42

0

42

Total Supply

11659

11659

11880

11884

0

12059

Other Exports

11

11

12

12

0

12

Total Exports

11

11

12

12

0

12

Fluid Use Dom. Consum.

4180

4180

4185

4185

0

4183

Factory Use Consum.

7468

7468

7683

7687

0

7864

Feed Use Dom. Consum.

0

0

0

0

0

0

Total Dom. Consumption

11648

11648

11868

11872

0

12047

Total Distribution

11659

11659

11880

11884

0

12059

(1000 HEAD) ,(1000 MT)

Dairy, Cheese

Production:

The new Post MY2016 total cheese production estimate is 282,000 MT, reflecting availability of fluid milk and stable demand for aged and fresh cheeses and cheese products. The Post MY2015 and MY2014 cheese production estimates remain unchanged.

Consumption:The new Post MY2016 total cheese consumption forecast is slightly up from the MY2015 estimate at 374,000 MT, as demand for aged cheeses is expected to remain fairly stable among high-middle and high-income consumers. Also, low and lower-middle income consumers will maintain their demand for fresh cheese products due to a stable purchasing power and traditional consumption patterns. The MY2015 consumption estimate was revised down based on input from private sources that cite reduced consumer's purchasing power given lower than expected economic growth. MY2014 figures were revised downward to reflect the latest official data.

Trade:

The Post MY2016 cheese import forecast is 97,000 MT, as fluid milk availability will allow for sustained domestic production and substitute for additional imports. However, Mexico will continue importing raw materials to complement domestic production. Post's MY2015 estimate was revised down given stagnant consumer purchasing power that limited consumption, mainly, in low-income consumers. MY2014 import estimates were revised down to reflect recently published official data from Secretariat of Economy (SE).

The new Post MY2016 forecast for cheese exports is 5,000 MT, similar to the MY2015 estimate. Despite competition in international markets with EU cheeses that are being diverted to other markets given the Russian embargo, Mexican cheese manufacturers will continue targeting new market niches in Central America and the Caribbean, such as El Salvador, Cuba, and Nicaragua. Increased domestic fluid milk production will make this trend feasible. Nevertheless, the prevailing low international prices could play an important role in making export decisions to decrease the amount. Post's MY2015 revised estimate is below the USDA official figure given the same effects mentioned above. MY2014 export estimate is unchanged reflecting the latest official data from SE.

Dairy, Cheese

2014

2015

2016

Market Begin Year

Jan 2014

Jan 2015

Jan 2016

Mexico

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Beginning Stocks

0

0

0

0

0

0

Production

275

275

280

280

0

282

Other Imports

99

88

110

95

0

97

Total Imports

99

88

110

95

0

97

Total Supply

374

363

390

375

0

379

Other Exports

4

4

6

5

0

5

Total Exports

4

4

6

5

0

5

Human Dom. Consumption

370

359

384

370

0

374

Other Use, Losses

0

0

0

0

0

0

Total Dom. Consumption

370

359

384

370

0

374

Total Use

374

363

390

375

0

379

Ending Stocks

0

0

0

0

0

0

Total Distribution

374

363

390

375

0

379

(1000 MT)

Dairy, Butter

Production:

The new Post MY2016 butter and butterfat production forecast is 197,000 MT, based on the availability of fluid milk and sustained demand from consumers for specialized products. The Post MY2015 and MY2014 estimates were kept unchanged based on industry data.

Consumption:

The new Post butter and butterfat consumption forecast for MY2016 is up around one percent from the MY2015 figure as demand for domestic and imported products from the bakery and confectionary sectors is expected to be fairly stable. In light of flat production, the Post consumption estimate for MY2015 was kept unchanged from the USDA official figure as increased international prices maintained imports balanced. MY2014 figures were adjusted downward to reflect data from the industry.

Trade:

The new Post MY2016 import forecast for butter (HTS 040510) and butterfat (HTS 040590) is 40,000 MT, in line with the MY2015 estimate reflecting sustained demand from consumers for specialized products. The Post MY2015 was kept unchanged. MY2014 import estimates were revised downward to reflect official figures.

Mexican butter and butterfat exports are beginning to emerge in trade data, albeit from a small base. The new Post MY2016 forecast is 8,000 MT, similar to the Post MY2015 estimate. MY2015 exports were stable mainly due to sufficient overall supply. MY2014 export estimate was revised downward to reflect official figures from SE.

The United States continues gaining market share in the Mexican market.

Dairy, Butter

2014

2015

2016

Market Begin Year

Jan 2014

Jan 2015

Jan 2016

Mexico

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Beginning Stocks

0

0

0

0

0

0

Production

192

192

195

195

0

197

Other Imports

37

30

40

40

0

40

Total Imports

37

30

40

40

0

40

Total Supply

229

222

235

235

0

237

Other Exports

8

6

8

8

0

8

Total Exports

8

6

8

8

0

8

Domestic Consumption

221

216

227

227

0

229

Total Use

229

222

235

235

0

237

Ending Stocks

0

0

0

0

0

0

Total Distribution

229

222

235

235

0

237

(1000 MT)

Dairy, Milk, Nonfat Dry

Production:

The Post MY2016 production forecast for Non-fat Dry Milk (NFDM) is 55,000 MT, the same as the MY2015 estimate figure. As previously reported, NFDM is manufactured in substantial volumes only when production of fluid milk allows it. Also, the sustained demand by other dairy

subsectors limits NFDM production growth. Post's MY2015 and MY2014 NFDM production estimates are unchanged and based on information from the industry.

Consumption:

The Post NFDM MY2016 consumption forecast is set at 277,000 MT given the sustained demand from the processing industry for the preparation of value-added products. The Post consumption estimate for MY2015 was revised down slightly from the USDA official estimate given decreased imports due to the government intention to buy more domestic milk rather than imported. MY2014 figures were kept unchanged.

Trade:

The new Post MY2016 import forecast for NFDM is up slightly from the previous MY2015 estimate at 222,000 MT, as domestic production is flat (as noted above) with imports filling the gap. The MY2015 figure is marginally lower than the USDA official data, which is in line with the current government policy to reduce imports and increase domestic purchases. MY2014 import estimate is unchanged. Nevertheless, sustained demand of NFDM from the processing sector is expected. As of June 2015, the United States holds an 86.5 percent share. Mexico holds the 1st place as a purchaser country of NFDM according to SIAP-SAGARPA and FAOSTAT.

No exports are forecast for MY2016. Also, no exports were recorded in MY2015 or MY2014.

Dairy, Milk, Nonfat Dry

2014

2015

2016

Market Begin Year

Jan 2014

Jan 2015

Jan 2016

Mexico

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Beginning Stocks

0

0

0

0

0

0

Production

55

55

55

55

0

55

Other Imports

203

203

230

220

0

222

Total Imports

203

203

230

220

0

222

Total Supply

258

258

285

275

0

277

Other Exports

0

0

0

0

0

0

Total Exports

0

0

0

0

0

0

Human Dom. Consumption

258

258

285

275

0

277

Other Use, Losses

0

0

0

0

0

0

Total Dom. Consumption

258

258

285

275

0

277

Total Use

258

258

285

275

0

277

Ending Stocks

0

0

0

0

0

0

Total Distribution

258

258

285

275

0

277

(1000 MT)

Dairy, Dry Whole Milk Powder

Production:

The new Post MY2016 dry WMP production forecast is 156,000 MT, up slightly from the previous MY2015 figure. Although increased fluid milk production could foreshadow increased production of dry WMP, the dry WMP subsector will need to keep competing for this supply with others in the processing industry to produce value-added products. In addition, demand is expected to remain relatively stable. The MY2015 estimate was revised upward in light of a marginal increased fluid milk production. MY2014 estimate is unchanged.

Consumption:

The dry WMP consumption forecast for MY2016 is set at 155,000 MT. This is up slightly from the MY2015 revised consumption estimate despite the continuation of the Government of Mexico's project to enlarge LICONSA's coverage under its social supply of milk program. Historically, LICONSA purchased larger amounts of NFDM and WMP to be reconstituted and distributed under its social program. Even though at stable amounts, the demand for WMP from the processing industry for preparation of value-added products is expected to continue. Due to LICONSA's intensified purchases of domestic fluid milk rather than imported dry WMP, the Post MY2015 estimate was revised slightly down from the USDA official to 154,000 MT. The Post MY2014 estimate is kept unchanged.

Trade:

The Post MY2016 import forecast is set at 8,000 MT, equal to the MY2015 estimate. Even though LICONSA continues purchasing domestic milk rather than importing dry WMP, value-added processors continue to demand it for reconstitution into sweetened fluid milk. Post's MY2015 and MY2014 import estimates were unchanged.

Post's MY2016 export forecast of WMP is set at 9,000 MT as a marginal increased fluid milk production and sustained imports are allowing the WMP processor continues looking for the consolidation of the current markets. MY2015 figures were revised up to reflect official data from the Secretariat of Economy. MY2014 export estimate is unchanged.

Dairy, Dry Whole Milk Powder

2014

2015

2016

Market Begin Year

Jan 2014

Jan 2015

Jan 2016

Mexico

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Beginning Stocks

0

0

0

0

0

0

Production

150

150

153

155

0

156

Other Imports

7

7

8

8

0

8

Total Imports

7

7

8

8

0

8

Total Supply

157

157

161

163

0

164

Other Exports

6

6

5

9

0

9

Total Exports

6

6

5

9

0

9

Human Dom. Consumption

151

151

156

154

0

155

Other Use, Losses

0

0

0

0

0

0

Total Dom. Consumption

151

151

156

154

0

155

Total Use

157

157

161

163

0

164

Ending Stocks

0

0

0

0

0

0

Total Distribution

157

157

161

163

0

164

(1000 MT)