Amidst the wettest August in 30 years’ time, the EU markets are still under pressure but market activity is slightly increasing with the gradual return to the office from market participants coming back from summer leave.
The Russian ban on ( a.o.)Dairy from EU is being felt especially hard in the cheese market. Current prices for foil cheese are at a level of €2800-€2900/t. Russia has imported 110.000 tons of Cheese from EU Year to date June. To find other markets to replace Russia will not be easy. That’s an understatement. It will be as good as impossible. The most likely scenario that will unfold is a shift at processors from cheese to powders which will put further pressure on SMP, Butter and WMP. Whey and Whey derivatives may get firmer because of this shift in as far as prices for substitute product will allow that.
Given the situation with the Russian ban, yesterday’s GdT did not surprise to show gains for particularly those products for which Russia is an important export destination of EU. WMP went up by 3,4%, AMF by 3,6% and Butter by 4,9 %. SMP lost a staggering 12%. Cheese lost 7,9% in value. Russia is looking rather to South America (SAM) to replace EU imports. This is mainly caused by difference in types of cheese produced. Of course they could look also to SAM for powders but SAM is way more expensive than NZ for the moment. The combination of the Russian trade ban and the continuing silence in China may encourage a change in product mix at Fonterra even though some banks’ researchers are forecasting a tremendous growth in China for the coming year.
The USA market is under pressure too in powders but butter remains at record levels last seen in 1998. USA is less affected by the trade ban as it is not allowed entry into Russia for dairy since many years. Therefor it appears the reaction to the ban was less immediate than in EU. Spot NFDM lost about $300/t since a week ago. Butter appears still firm which may encourage ongoing strong NFDM/SMP production.
Meanwhile, the June 2014 export figures for EU were published, again showing an astonishing performance. During June EU exported 57.000 t of SMP, + 62% Year on Year, bringing the total to 329.000 t this year until June. This is 125.000 t more than last year. It is doubtful - in spite of the record milk output - that the extra production of SMP has matched this in the same period. According to published production figures up to May, the increase of SMP was only 7,9%. Estimation would be that this represents about 40-50.000 t up to June. Effectively, at the end of June, stocks were lower than 1/1/2014. The developments in pricing are based on an anticipated declining demand/ higher production rather than a current imbalance in Supply and Demand. SMP is not that much affected by the Russian ban, representing less than 10.000t/year of EU’s total exports of SMP.
The other products did well too, with the exception of Cheese that stays 1% below last year’s levels. This is likely to suffer further as Russian imports represented 110.000t from EU until June. This is 28,7% of total EU Cheese exports ! July will probably be fine but from August onwards we will see a steep decline.
WMP increased by 19%, totaling 215.600 t, Butter increased by 25%, totaling 62.500 t and Whey/Derivatives are at +2%, totaling 258.500 t.
All in all it is a very interesting market but cautiousness is needed. Given the current challenges of the Global market, the modest loss on GdT does not constitute any form of market recovery. In our view the result was dampened by the effect of buyers of WMP and Butter for Russia. EU pricing remains under pressure. In just over a week the Coops will publish their September milk pay out prices. If the market plays any role in that, we would not be surprised to see a significant step downwards.
The Official Dutch Quotations this week
Product This week Last week ∆ change Trend
Off. Dutch quotations €/mton
Butter 3200 3350 -150 ↓
Whole Milk Powder 2470 2570 -100 ↓
SMP Food 2150 2400 -250 ↓
SMP Feed 1900 2050 -150 ↓
Sweet Whey Powder feed 810 870 -60 ↓
Greenmark indices €/100 liters
TMV* Butter/SMP** 30,31 32,13 -1,82 ↓
TMV* Cas/Whey/Butter** 37,35 39,59 -2,24 ↓
TMV*Cheese/Whey** 33,58 39,66 -6,08 ↓
* TMV = Theoretical Milk Valorisation in these product combinations.
** Values are calculated on basis of current sales prices and are including processing costs but excluding revenue out of by streams and/or optimalisations such as milk standardisation.
Again a week with big steps downwards.
Just when the cheese/whey combination was improving in terms of milk valorization, it got a hit on the head by the Russian trade ban and fell dramatically with not an end to it in sight. Caseinate/Butter/Whey is the best valorization for the time being but a fragile status to sustain in view of the implicit overpricedness of casein and caseinates compared to SMP. SMP/Butter spiraling further downwards.
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 slightly weaker. WPC80 now traded at levels around the € 7000/t but more often just below that. WPC35 prices are deteriorating because of lower SMP prices in the Food and Feed markets. SWP for feed currently trades at € 795/t. Lactose very weak. We have heard prices < €700/t. Also other Whey derivatives are suffering. In view of an anticipated decline in cheese production however the room to decline much further sees unrealistic, with the exception of Lactose (and as a result of that : whey permeate) as apart from market hick ups, there seems simply too much structural production.
SMP for food weaker. Current pricing for SMP lies between € 2100-€ 2300,-/t depending on origination and/ or final export destination. Trend is weaker. Currently SMP for Feed is traded at € 1850/t with no buyers and sellers inviting bids.
FCMP weak. Prices between € 2350-2450,-/ton depending on origination and/ or final export destination. Given current Oceania pricing however, exports are unlikely to occur.
Caseinate pricing weaker. Caseinate priced today between € 7600-€ 8400/t., but we hear of even lower prices. Acid casein weaker at a level of around the € 7350/t and Rennet weaker too at levels of € 7200/7400/t. In view of the current turbulence on the market the trend is down. Trend is clearly down. In SMP equivalent prices are moving towards quite a bit below € 7000/t
Nijmegen, 20th August 2014
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