Mexico. Dairy and Products Semi-annual May 20, 2016

Highlights

Fluid milk production is expected to increase in MY2016 at the same time international demand for dairy products contracts. Shifts in consumption patterns toward value-added products that offer health benefits despite their relatively higher cost is stemming fluid milk consumption. Thus, Mexico will keep importing dairy products, mainly Non Fat Dry Milk and cheeses, to fulfill its processing needs.

Production

Commercial fluid milk production for MY2016 is expected at 12.1 million tons as improved genetics and technology continue to lift Mexican milk production. However, low international prices of milk — due to the contraction of international demand for dairy products— continue affecting the domestic sector. While the world dairy sector is expecting a general recovery by the second half of 2016, Mexico's dairy sector is not that enthusiastic about near-term prospects.

The Mexican Government's plan to focus on improved productivity of small producers and their presence in the market must wait, as the global oversupply and changes in consumer consumption patterns for dairy products prepared with Nonfat Dry Milk (NFDM) are increasing NFDM imports.

LICONSA's [1] has increased the price paid to producers, but commercial fluid milk production for

MY2015 is revised downward due to the above mentioned factors.

Consumption

The Post MY2016 total fluid milk consumption forecast (domestic and factory use) is 12.13 million tons based on anticipated slightly higher production levels. While the dairy processing industry tries to meet demand for specialized products, the consumption of fluid milk is decreasing. LICONSA continues supporting fluid milk consumption among lower income groups by guaranteeing low prices as the point of sale, but this does not compensate for the decreased consumption by processors. The Post MY2015 total fluid milk consumption estimate is revised downward.

Trade

The new Post MY2016 import forecast is 42,000 MT, marginally up from the revised MY2015 estimate based on the forecasted increase in domestic production and stable demand from the processing industry. Due to low international prices of dairy products, it is more attractive for the processing industry to import NFDM than to purchase domestic fluid milk. The Post MY2015 import estimate was revised slightly downward reflecting latest official figures. The Post MY2016 fluid milk export forecast is expected marginally up from the MY2015 figure as increased production results in additional product availability for export to mature markets in Central America. Post's MY2015 estimate was revised slightly down due to marginally decreased production.

Marketing

The Mexican food industry is growing rapidly and has been the primary market demand driver contributing to the growth in U.S. exports. Currently, the top producers of fluid milk and dairy products are competing to launch more innovative products for specific segments to gain market share. Also,

Consumers are more conscious of what they buy and eat and they are willing to pay more for better-quality dairy products. Increased consumption of alternate formulas –almond, soy, rice, and coconut– are constraining fluid milk consumption.

Production , Supply and Demand Data Statistics

Dairy, Cheese

Production

Commercial total cheese production for MY2016 estimate is 285,000 MT, reflecting availability of fluid milk and stable demand for aged and fresh cheeses and cheese products. The Post MY2015 figure was marginally down due to a marginally decreased fluid milk production.

Consumption

The new Post MY2016 total cheese consumption forecast is 395,000 MT, as demand for aged cheeses is expected to remain fairly stable among high-middle and high-income consumers. Low and lower-middle income consumers will maintain the demand for fresh cheese products despite a stagnant purchasing power. 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.

Trade

The Post MY2016 cheese import forecast is 115,000 MT. Despite adequate fluid milk availability, 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.

The new Post MY2016 forecast for cheese exports is 5,000 MT, marginally up from the MY2015 estimate. Despite competition in international markets with EU cheeses that are pursuing other markets

given the Russian embargo, Mexican cheese manufacturers will continue targeting new and mature market niches in Central America and the Caribbean. Post's MY2015 revised estimate is below the USDA official figure given the same effects mentioned above.

Production, Supply and Demand Data Statistics

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 figure was kept unchanged given the stable demand from the industry that requires this product for the elaboration of specialized products.

Consumption

The new Post butter and butterfat consumption estimate for MY2016 is expected to be marginally up due to a sustained demand for domestic and imported product by the bakery and confectionary sectors. In light of a flat production and decreased imports, the Post consumption estimate for MY2015 was revised downward.

Trade

The new Post MY2016 import forecast for butter (HTS 040510) and butterfat (HTS 040590) is 40,000 MT, reflecting sustained demand from consumers for specialized products. The Post MY2015 was revised downward mainly due to reduced consumer purchasing power constraining increased consumption. 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.

Production, Supply and Demand Data Statistics

Dairy, Milk, Nonfat Dry

Production

The Post MY2015 production forecast for NFDM is flat at 55,000 MT. The sustained demand by other dairy subsectors and the current low international prices limit NFDM production growth. Post's MY2015 production estimates are unchanged.

Consumption

The Post NFDM MY2016 consumption forecast is set at 320,000 MT given the sustained demand from the processing industry for the preparation of value-added products. The Post consumption estimate for MY2015 was revised up to reflect this sustained demand. Currently, consumers are more selective in search of “practical" products that provide nutrients and vitamins, are easily digested, and also prevent obesity.

Trade

The new Post MY2016 import forecast for NFDM is 265,000 MT, as domestic production is flat (as noted above) with imports filling the gap. The MY2015 figure is revised upward to reflect the latest official data and the sustained demand from consumers for specialty products whose preparation is based on NFDM.

No exports are forecast for MY2016 and no exports were recorded in MY2015.

Production, Supply and Demand Data Statistics:

Commodities

Dairy, Dry Whole Milk Powder

Production

The dry WMP production estimate for MY2016 is 156,000 MT, up slightly from the previous MY2015 figure. Although increased fluid milk production could allow for a production increase, the dry WMP subsector will continue to compete for this supply with others in the processing industry to produce value-added products. Demand is expected to remain relatively stable. The MY2015 estimate was kept unchanged due to a flat fluid milk production.

Consumption

The dry WMP consumption forecast for MY2016 is set at 155,000 MT as LICONSA's coverage under its social supply of milk program is set to continue. In recent years, LICONSA intensified purchases of domestic fluid milk rather than imported dry WMP; however, low international prices and a limited budget has reduced the amount of fluid milk purchased domestically. The estimate for MY2015 was revised downward to 151,000 MT reflecting the latest official data. However, the demand for WMP from the processing industry for the preparation of value-added products is expected to continue.

Trade

The Post MY2016 import estimate is set at 7,000 MT as, in light of low international prices, value-added processors increased their imports of NFDM to complement their needs. The demand for dry WMP for reconstitution into value-added dairy products, such as sweetened milk and yogurts, will continue. Post's MY2015 import estimate is revised marginally down given the same factors from above.

Post's MY2016 export estimate of WMP is set at 8,000 MT as sustained imports are allowing WMP processors to continue looking for the consolidation of the current markets. MY2015 figures were revised up to reflect official data from the Secretariat of Economy.

Production, Supply and Demand Data Statistics: