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report icon22013 was a year for the record books. What started as a year that could be characterized by normal milk supply gains turned out to be the complete opposite. European milk output was lagging 2012 levels, through the first half of 2013 which went largely unnoticed by the world until the shock of the extreme drought in New Zealand. 2013 quickly moved from an average year to an extraordinary year. A few months later, the full weight of the Chinese food and mouth epidemic became known as imports for that country went from strong to unbelievable. In the end, China imported 40% more nonfat dry milk (NDM) and skim milk powder (SMP) in 2013 vs. 2012. But not to be outdone, Chinese whole milk powder (WMP) imports leapt 53.7% higher in 2013 vs. the prior year.

As China worked to fill what appeared to be an insatiable domestic demand for dairy products, its own milk supply began to plummet after widespread flooding in dairy producing regions in late summer. What looked to be a temporary shortfall due to New Zealand’s drought became something quite different by Fall 2013. With China buying up dairy solids from around the world, other countries had little choice but to pay higher prices, substitute where possible or go without dairy products.

This was the back drop for what has become a record-setting year for the United States as manufacturers exported 3.91 billion pounds of milk solids, or 15.5% of total milk produced, according to U.S. Dairy Export Council. This reflects a 19% increase in milk solids volumes over 2012 export activity. Lower global milk output coupled with strong demand in 2013 resulted in world buyers seeking out U.S. dairy products to fill the void. The United States 2013 exports exceeded 2012 for whey (+9.6%), lactose (+11.7%), nonfat dry milk (NDM) and skim milk powder (SMP) (+25%) and milk protein concentrate (MPC) and whey protein concentrate (WPC) (+25%), cheese  (+21.3%) and butterfat (+89%).

At the start of 2014, milk supplies around the world are fundamentally on the mend with one great exception the United States. While dairy farmers are starting to benefit from the highest margins in history, extreme weather has plagued most of the United States which has worked to decrease milk production in key dairy producing regions namely the Midwest. As spring approaches and weather abates, domestic milk production should also begin to recover. Milk production firing again on all cylinders throughout the world could take some of the edge of current prices – but how much and when largely depends on China and the strength of its dairy demand at the start of the year.