As GDT stages 5th bullish auction, could 2017 see further price improvements?
FCStone International predict a March reduction in EU supplies of 0.19% – a narrowing in the gap with previous year’s supplies. However, during April, a cold and dry spell over Northern Europe subdued the recovery of German, Dutch and French milk supplies, and now the European peak is just behind us. Also, the herd reduction scheme in the Netherlands will continue to reduce their capacity for this year.
While the gap with last year’s supplies has tightened, it is doing so more slowly than expected, and EU milk output appears unlikely to spill into larger volumes than 2016 until later this year (see global output below).
Intervention stocks of SMP (350,000t) remain an overhanging concern. Also, while buying-in has resumed, the quantities have been very much more modest than this time last year, totalling 6,554t for 6 week period ending 7th May, versus an average of 15,000t/week at this point in 2016. Also, SMP processing is down by over 9% in the first two months of 2017 (see graph right), and down by 3.3% in the period from April 16 to end February 2017. With this trend is continuing, fresh SMP availability is now below demand. Hence while the high intervention stocks and buying in remain influential in buyers’ assessment, it is clear that shortages of fresh SMP could be an issue later this year.
Dairy commodity prices are firm for butter, whey and cheese, weaker for powders – but in recent weeks in the EU, all dairy prices have increased (see below).
All in all, it seems we have the ingredients for medium term stability, at worst.
Theo Spierings, CEO of Fonterra, in recent days even predicted 3 years of stable milk prices for New Zealand farmers! That’s a longer horizon than I would consider, as so many things will happen over those three years, not least for us Brexit!