The EU markets are fairly active at the moment and have been since about two weeks. The main factors behind this also this week have been an ongoing favorable good Dollar- Euro parity which makes EU one of the more competitive origins vs Global demand plus the speculations that EU operators have secured a sizable part of the Onil tender.
Last week we wrote that RABO believes that Chinese production in H1 2014 was down by 6%. Apparently this is not Rabo’s view. The number was based on a quotation in an Australian trade journal. Apparently this was based on 2013 figures and not 2014. Our apologies for that. To the contrary, in speaking to Rabo it appears that their view is that in H1 2014 milk production has been recovered largely, approaching H1 2012 levels.
Meanwhile the EU export figures have been published and yet again show record volumes. Even Cheese has recovered in July and is now, YTD July 2014, exactly on par with 2013 export volume. The rest of the commodities are SMP 382.500 t + 60%, WMP 245.600 t + 13 %, Butter 73.300 + 28% and Whey 303.400 + 1%. Strong growth is also noticed in Fat Filled Milk powders and UHT milk.
What a year it would have been if only the milk hadn’t been flowing so abundantly!
A further analysis of the EU statistics learns that in spite of the records in exports that were set until July, this has not been enough to absorb all the extra milk that was produced, which becomes clear from Table 1:
in tonnes in tonnes in tonnes
Total milk July 2014 87.307.234.000 Total milk July 2013 83.056.278.000
Surplus milk after additional Exports vs 2013 2.762.096.000 ___________________________________
Taking EU domestic consumption on a Ceteris Paribus basis, the table shows that only 35% of the additionally produced milk has found a destination on export markets.
We have mentioned it above regarding China and we have mentioned before that the situation with Russia is a negative development. For China we can say if all is true what we wrote above, at some point also the statistics will start confirming this. For Russia we can say that from August onwards we may anticipate a strong decline in exports.
Whatever way we look at it however both these big importers are instrumental in price developments but are in itself not the reason for it.
We won’t beat around the bush; there is simply too much milk.
We have taken YTD July exports for the most important export commodities and calculated their share in Export volume in relation to each other in terms of Milk Equivalents (Meq). In rounded figures we come to Butter 9%, Cheese 29%, SMP 22%, WMP 18% and Whey 22%.
Table 2 based on EU domestic consumption being fairly constant, all additional volumes of milk must be exported. Table 2 shows basis, shows the volumes of these commodities that should have been produced and exported out of the remaining surplus by end July 2014 to have balanced out the additional milk:
Product Qty in tonnes
Even more telling is Table 3 in which we play around with the figures and extrapolate them to 31/12/14 and add the volumes to it that will not be exported to Russia from August – December due to the current Ban for EU product ( based on Russia EU imports Jan-July ’14);
Product Qty in tonnes extrapolated 31/12/14 add. Volume, including Russia trade ban
Cheese 141.023 241.754 321.754
SMP 115.966 198.799 200.000
Butter 21.902 37.546 40.500
Whey 94.947 162.766 165.000
WMP 74.539 127.781 132.500
Even though it is clear that at the moment, EU has good exports due to its competitiveness, stocks are building in spite of that and the records it has set already in export output. In the coming months the product mix will change significantly, away from Cheese and into SMP/SMP most likely. All in all a pretty bearish scenario except for whey/whey derivatives.
And then we had Gdt yesterday, showing a 0% move in prices. There is not much to add to that other than we have the impression that the results were prevented to decline further vs the previous GdT due to Chinese buying for early 2015 deliveries. The gains in the November and December contracts for SMP and WMP were largely offset by losses in contracts Jan-March.
In India there’s a de facto export stop because of their prices which are about $ 1200/t out of sync with the global market place. Maybe on term another destination for exports?
In the USAS markets keep moving up. Domestic prices for Butter have gone up so much that EU (Or more likely because of pricing) imports are feasible.
Admittedly, the latter two developments are merely small solutions to EU’s milk issue.
Official Dutch Quatations 17/9/14 this wk € in $ Last wk € in $ Change € in $
* TMV = Theoretical Milk Valorisation in these product combinations. ** Values are calculated on basis of current salesprices and are including processingcosts but excluding revenue out of by streams or optimisations.
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.
WHEY & WHEY DERIVATIVES
Higher WPC’s are stable. WPC80 continue to trade at levels around the € 7000/t. WPC35 prices are stable. SWP improved again. Today it’s traded at € 875/t, this most likely has to do with an expected lower Cheese output in favour of more powder production, thus limiting the whey availability.
SMP stable this week with a very slight firmer undertone due to Onil expectations. If this sentiment will survive the coming weeks remains to be seen. Current pricing for SMP lies between € 1950-€ 2100,-/t depending on origination and/ or final export destination. Feed SMP traded around levels of € 1750- € 1800/t but some lower priced spot lots are in the market.
FCMP continues to be weak but has stabilized this week on the back of expected Algeria orders. Prices between € 2300-2450,-/ton depending on origination and/ or final export destination. Given current Oceania pricing however, exports are unlikely to occur and the product remains under pressure.
Caseinate pricing weaker. Caseinate priced today between € 7450-€ 8200/t., but we hear of even lower prices. Acid casein weaker at a level of around the € 7250/t and Rennet weaker too. Lowest we heard this week was a level of € 6700/t for Rennet casein. In view of the current developments in SMP the market the trend remains down. In SMP equivalent, prices should have to be around € 6000/t but there’s still a long way to go before we are there.
Nijmegen, 17th September 2014
Robert Schorsij 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.