In a continuingly inactive market and amidst a period of the highest investments in history in processing capacity all over the world in Dairy Production, cards are being reshuffled and plans are being made for the future. But that is then and this is now……………
For the EU, previous estimates to close the year with a 4,2% plus in milk output appears to have been too modest. Judging by the ongoing strong production and still relatively high milk prices, EU may very well end the year with a plus of nearly 6%. YTD September we are already at 5,5% or about 6 million tonnes of milk. Against expectations, Cheese production keeps going up, even in September ( post Trade Ban from Russia), by 2,6%. YTD September, the Cheese production has increased by 165.000 mt, where exports have gone down by 35.000 mt, providing the internal market with a surplus of 200.000 mt YTD September. By far however, the strongest increases in production of end product can be noted in Milk Powders. Combined, WMP and SMP increased by about 400.000mt YtD September, where exports of the two increased by 195.000mt, presenting the internal EU market with a surplus of over 200.000mt, which will predominantly consist of SMP. Given the very slow market we have been seeing so far in Q4 and ongoing acceleration of Milk Production, we may end the year with SMP stocks between 250-300.000 mt. It is therefore no wonder that prices keep eroding further.
Last week’s GdT was a reflection of the wider marketplace where the average winning price lost another 3,1%, a figure that both the USA and EU have grown accustomed to as relatively modest. The strongest losses were recorded for Powders, SMP lost 5,7% and WMP lost 5,1%. AMF, Butter and Cheese did well with gains of respectively 6,1%, 6% and 5%.
However it appears that the results could have been different. We were alerted by some Chinese buyers that during bidding round 5, their Internet connection got lost and due to that they could not continue bidding and had to give up. When asked for comments, Fonterra/GdT acknowledges that this has happened to 4 buyers in North China but maintain “In our view it is unlikely that this had a significant affect on the auction outcome. The number of affected bidders was small, and the price for WMP continued to rise four times after round 5, indicating that there was still surplus demand”
Contrary to what Fonterra/GdT seem to believe however, we think it is rather more likely than unlikely that the results suffered because of this internet disconnect. First of all, most WMP is bought by China. So instead of 4 out of 173 participating bidders, we’re really talking about a much smaller group of participating bidders if we look product specific ( WMP). Second, typically, on any auction, prices move higher along with the number of bidders being higher.
On the next GdT, next week, we will see what happens to especially WMP pricing.
Meanwhile when we look at the GdT results, it looks like the forecast payout price of $5.30/kg solids may be well off the table and we’d sooner be looking at a price of $ 4,30- $4,40.
China import statistics for October have been published. On the whole the YtD figures still show growth for the key dairy commodities but this is mainly because of the extremely high imports in the first half of the year. From July onwards we can see imports effectively go down below 2013 levels.
China imports YTD Sept 14 vs 13 YTD Oct 14 vs 13 ∆ % change in % in % vs prev. Mo.
SMP 34,70 27,00 -22,19
WMP 56,50 40,80 -27,79
Whey / Derivatives -7,00 -7,70 -10,00
Butter 94,30 75,70 -19,72
At the pace Chinese imports are declining versus earlier in the year, we may ask ourselves what the figures will look like at the end of the year. By the look of it and with the substantial stock positions still available in China in our mind, isn’t it fair to assume that Chinese import consumption has only grown very modestly and maybe has not even increased at all compared to 2013 ?
Given the enormous surpluses of Milk in Oceania, USA and EU the outlook appears undeniably grim and significant price recoveries may take a very long time to occur.
OFFICAL DUTCH QUOTATIONS This week € in $ Last week € in $ ∆ in € ∆ in $ price 26th November 2014
Cas/Whey/Butter remains head and shoulders the best valorisation by some distance. Caseins and Caseinates however only form a small fraction of total output SMP/Casein(ates)
For clarity’s sake: The Dutch quotations are a reflection of the week prior to this publication. The TMV indices are a reflection of the market today.
Product Comments Trend
Sweet whey powder SWP is slipping away at the moment. We also hear of Demin and Delactosed whey powders being under pressure. Currently SWP traded at € 805/t for Q1. Weak
WPC 35 WPC 35 very weak on the back of weak SMP pricing. Currently trading well below € 1500/t Weak
WPC 50%-80% Higher WPC's seem to come off a little. Current range for WPC 80 € 6300 - € 6900/t Stable/ weaker
Lactose Lactose stable at €850 - €900/t. Stable
Casein and Caseinates Both Casein and Caseinates coming under more pressure. Regular caseinate traded between € 7000- € 7500 but tendency down. Weak
Skimmed Milk powder SMP Food very weak at levels of just under € 1800/t. SMP Feed weak, currently trading at € 1625/t. for Dec/ Q1. Weak
Whole Milk Powder WMP for the first time in 12 weeks down. Weak
Robert Schorsij, 26th November This report is updated every wednesday. Should you want to receive the report directly by email, please use the contact form on the 'contact us' page. Back issues available upon request.