Report Highlights: 

Climatological and economic factors are supporting expansion of the dairy herd and higher milk production in marketing year (MY) 2014. Post’s production forecast for fluid milk is raised to 11.6 million metric tons (MMT) and the increased supply should trickle through to spur slight increases for cheese and butter production. This is likely to result in marginally smaller import volumes, but imports of dairy and dairy products from the United States will remain strong.

Dairy, Milk, Fluid

Production: 

The Post MY2014 (January to December) fluid milk production forecast is increased to 11.6 MMT based upon domestic herd recovery as well as continued implementation of better production practices among vertically integrated producers, improved genetics from better yielding milk cows, and availability of forage in pasture lands. The Post fluid milk production estimate for MY2013 is revised marginally downward to reflect official data while the Post estimate for MY2012 is unchanged. 

The availability of grain at attractive prices, water availability for use in confinement establishments, and pasture availability has allowed producers to consider, once again, expanding production. Water reservoirs and the water table in key producing areas has recovered and alleviated grazing pasture scarcity and quality issues. Additionally, in the second quarter of 2013, LICONSA increased the price paid to producers and this should bolster 2014 production levels.

Consumption: 

The Post MY2014 total fluid milk consumption forecast (domestic and factory use) is revised upwards to 11.6 MMT based on anticipated production levels. The industry forecasts sustained consumption of added-value products for middle and upper income consumers with sustained support from LICONSA for lower income consumers. The Post MY2013 total fluid milk consumption estimate was revised downward slightly from the USDA estimate based on official Mexican production data. The estimate for MY2012 is unchanged. 

Industry contacts indicate that total consumption of fluid milk is comprised of both fresh and Ultra High Temperature (UHG) milk. Fresh pasteurized milk consumption accounts for about 56 percent of fluid milk disappearance while 44 percent is UHT (Ultra High Temperature) milk. Due to energy/refrigeration costs, many retail establishments do not have large dairy cases for fluid milk and keep short supplies on hand with new product delivered several times per week. As such, it is often easier to work with UHT milk as it can be delivered and placed in retail aisles without the added cost of refrigeration. 

The dairy industry has been responding to increased demand for specialized products, such as lactose-free products, 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. 

Consumers, also, are switching to other prepared and processed dairy products such as probiotic and drinkable yoghurts. Trends suggest that consumers may switch back to or combine low-priced and traditional yoghurts if the functional benefits from consuming these preparations are not observed. In the same way as with low-priced fluid milk, low priced yogurts are gaining share among mid-income sector consumers. Fluid dairy preparations offering attractive prices, a full range of flavors, a longer shelf life, and nutritional and functional benefits have been the driving factors that support the consumption of these products. 

Prices: 

LICONSA announced a 0.6 pesos (U.S. $0.04) per liter increase in the price paid to producers for a final purchase price of 6.20 pesos (USD $0.47) per liter in the second quarter of 2013. This agreement entered into force in the second half of 2013 and as of the first quarter of 2014 there is no foreseeable change likely in 2014. On the consumer price side, LICONSA announced that the price of milk distributed to low-income households would be raised 0.5 pesos (U.S. $0.03) per liter for a final price of 4.50 pesos (U.S. $0.33). LICONSA has maintained this price during the first quarter of 2014. According to official information from LICONSA, the daily distribution of fluid milk accounts 3.1 million liters in 1,949 municipalities across the country under the provisions of 33 Social Supply Programs. This represents a 10.2 percent share of the domestic production. 

Trade: 

The Post MY2014 import forecast of 42,000 MT is lower than the USDA official forecast based on the potential for increasing domestic production. The Post MY2013 fluid milk import estimate is based on official data and reflects elevated international milk prices that curbed imports slightly below the USDA estimate. The MY2012 estimate remains unchanged at 39,000 MT. 

The Post MY2014 fluid milk export forecast is now slightly higher at 11,000 MT as an increase in production will allow milk exports to rebound to previous levels. Post’s MY2013 export estimate was revised upwards to 10,000 MT based on official export data and attractive international prices. MY2012 export estimates remain unchanged. 

Stocks: 

No stocks are held due to the lack of refrigeration or storage space among producers and end-users. As such, end-users utilize just-in-time delivery for those products which enter value-added processes.

Dairy, Cheese

Production: 

The new Post MY2014 total cheese production forecast is 275,000 MT reflecting increased availability of fluid milk and stable demand for aged and fresh cheeses and cheese products. The Post MY2013 and MY2012 cheese production estimates remain unchanged. 

Consumption: 

The Post MY2014 total cheese consumption forecast is virtually unchanged at 365,000 MT as demand for aged cheeses is expected to remain stable among high-middle and high-income consumers. Moreover, low and lower-middle income consumers will maintain their demand for fresh cheese products. The MY2013 and MY2012 consumption estimates were revised downward from the USDA estimates based on lower import volumes, which, in turn, limited consumable supplies.

Trade: 

The Post MY2014 revised cheese import forecast is 95,000 MT as fluid milk availability will allow for increased domestic production and substitute for imports. Post’s MY2012 and MY2013 import estimates were lowered downwards reflecting official trade data. 

The Post MY2014 cheese export estimate is revised marginally upwards to 5,000 MT as Mexican cheese manufacturers are expanding to foreign markets. Post’s MY2013 export estimate is increased slightly based on official data and the MY2012 export estimates is unchanged.

Dairy, Butter 

Production: 

The Post MY2014 butter production forecast is revised upwards to 190,000 MT owing to the availability of fluid milk and sustained demand from consumers for specialized products. The Post MY2013 estimate was revised upwards based on industry data and the steady demand for these products. The MY2012 estimate for butter production is unchanged and reflects industry data. 

Consumption: 

The new Post MY2014 butter and butterfat consumption forecast is revised upward, marginally, from the USDA official estimate to 240,000 MT based on stable demand for domestic and imported product by the bakery and confectionary sectors. The Post estimate for MY2013 was revised downward based on trade flows and official data. The MY2012 consumption estimate is revised downward from the USDA official estimate based on official production and trade data. 

Trade: 

Although available year to date data does not suggest stronger import volumes over the pace of the preceding year, the Post MY2014 import estimate for butter (HTS 040510) and butterfat (HTS 040590) is 55,000 MT due to sustained demand from the bakery and confectionary sectors; especially in the latter part of the year. The Post MY2013 import estimate was revised downward from the official MY2013 USDA estimate as the processing industry’s strong demand for butter and butterfat for the preparation of bakery and confectionary products was covered by domestic production. The import estimate for MY2012 is revised lower based on official data. 

Mexican butter and butterfat exports are beginning to emerge in trade data. The volume is forecast at levels greater than the USDA forecast, but still just barely registers. MY2013 and MY2012 export estimates are based on official data. 

It is forecast that New Zealand and Australia will continue being the principal suppliers of butter and butterfat to Mexico while the United States maintains its market share.

Dairy, Milk, Nonfat Dry

Production: 

The Post MY2014 production forecast for Non-fat Dry Milk (NFDM) remains unchanged at 55,000 MT. As previously reported, NFDM is manufactured in substantial volumes only when there is seasonal overproduction of fluid milk during Mexico’s rainy season. Ample rains are expected to help pasture lands and water reservoirs recover. Even with increased fluid milk production, however, demand by other dairy subsectors could limit NFDM production growth. Post’s MY2013 and MY2012 NFDM production estimates are unchanged and based on official information from SAGARPA. 

Consumption: 

The Post NFDM MY2014 consumption forecast remains unchanged from the USDA official forecast of 265,000 MT. The Post consumption estimate for MY2013 was revised marginally downward given reduced availability from slightly smaller imports that are attributable to strong international prices. The Post consumption estimate for MY2012 is unchanged. 

As previously reported, industry sources state that the principal consumers of NFDM are dairy processors who reconstitute the material and sell it as pasteurized or UHT milk. Also, the confectionary industry continues using small quantities of NFDM in their processes. 

Trade: 

The Post MY2014 import forecast for NFDM remains unchanged from the USDA official forecast even though year to date import volumes are not keeping pace with the previous year. The MY2013 estimate is revised marginally downward to reflect official trade data. The MY2012 import estimate is unchanged.

Dairy, Dry Whole Milk Powder

Production: 

The Post MY2014 dry WMP production forecast remains unchanged at 150,000 MT. Although increased fluid milk production is forecast, the dry WMP subsector will have to compete for this supply with others in the processing industry to produce added-value products. The MY2013 and MY2012 estimates are unchanged. 

Consumption: 

The Dry WMP consumption forecast for MY2014 remains unchanged at 157,000 MT. The Post MY2013 estimate was revised marginally higher owing to increased imports. The Post MY2012 consumption estimate was kept unchanged from the USDA official estimate at 154,000 MT. 

Trade: 

The Post MY2014 import forecast remains unchanged as LICONSA continues purchasing domestic milk rather than imported dry WMP. MY2013 import estimates were revised upward to reflect official data. The MY2012 import estimate is unchanged. 

Post’s MY2014 export estimate of WMP is maintained at 5,000 MT. During MY2012 and MY2013 exports were stable and remain unlikely to change in MY2014. 

Private sources indicate that the dairy industry is strong and capable of increasing their export capacity for dry WMP. This rests on the availability of fluid milk and whether surpluses are directed for other processed milk products. Post’s MY2013 and MY2012 export estimates are unchanged and reflect official data.

Policy: 

General Tariffs 

Currently, all U.S. dairy products enter Mexico duty-free.

Labeling 

The Mexican Government has proposed new food product labeling requirements. This is reportedly due to Mexico’s high incidence of adults and children being overweight or obese. The Mexican dairy sector is monitoring the proposal but has not highlighted any specific concerns as many industry players are uncertain about the scope of the Mexican government proposal. 

Market Access 

The United States enjoys broad access to the Mexican market, but U.S. exports of unpasteurized milk to Mexico have been disrupted since May 2012. The milk was being exported to Mexico for pasteurization and use in Mexico during seasonal shortfalls or periods of tight Mexican supply for processing use. The United States and Mexico are continuing to negotiate the language and review the criteria by which trade in this product can resume