Dairy Market Reports

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Dairy Market Reports

Output growth expected to be relatively modest

The most recent EU short term outlook report published by the EU Commission shows EU milk supplies have grown more modestly, rather than fallen due to the drought.  However, it is expected that fodder supplies for the winter will be particularly affected in Germany, Northern France and the Benelux.  Ireland will most probably has similar problems, as will the UK.  Milk supplies for August were estimated at +0.5%.

Consequently, the EU Commission has revised its projected production increase for 2018 from 1.4% to almost half, at 0.8%.  For 2019, the continued impact of fodder shortages leads the Commission to estimate production growth at no more than 0.9%.  For both years, the EU Commission expects to a very small downward adjustment in cow numbers.

Source: EU MMO

Global supplies for the year to August were reported 1.5% up.  The graph right shows that somewhat slower EU growth for the month of August is being compensated for by rising US and NZ production.

Source: USDEC

Demand good in US, SE Asia and China, but growing less fast than output

Global dairy demand forged ahead in the first half of 2018, but is now reckoned to be rising by only 1% – with global output rising 1.5%.

Demand remains good in China, though import growth has slowed for the Jan-Jul 18 period compared to the same period in the previous year.

Source: CLAL

In the rest of SE Asia, demand for powders and casein has improved after a poor start to the year, while demand for cheese and butter is strong, albeit from low levels.

In the US demand is very strong for cheese and butter (after a poor 2nd quarter), while powder demand is slow.

Mexico, Algeria, Egypt and Singapore have seen strong increases in SMP imports, with strong increases in imports of butter in China, the US and Australia.  Cheese imports to Japan and Russia have also increased strongly – Russian imports came from outside of EU, which remains embargoed.

Source: EU MMO

Commodity prices easing, but September returns still stronger than current (Irish) milk prices

Commodity prices in September evolved positively generally in Europe – though butter did weaken – but significantly worse in Oceania.  Commodity prices between the two regions continued to diverge, with higher SMP prices in Oceania, and lower prices for most other commodities – especially significant difference on butter.

Source USDEC

Based on data from: EU MMO

More recent trends in Europe – late September/October – suggest continued easing.  However, returns from the main commodities for 30th September remained above 37c/l before processing costs – so a milk price equivalent of 32.21c/l + VAT (33.95c/l incl VAT) after a notional 5c/l processing cost has been deducted.

Based on data from: EU MMO

Outlook a mixed picture

Global output growth shows diverging trends in different regions: strong increases in NZ (and South America), relative stability in the US, and expectations of lower output at year end and new year from EU due to the impact of drought on fodders stocks.

While EU overall supplies have risen 1.7% for the January to July period, they have slowed in August, and statistics for the most recent period suggest that Germany, France and the Netherlands have seen negative growth.

While rising oil prices and a strong US$ are major positives, traders are concerned about what is going on in New Zealand: the NZ$ is very weak against the Euro, further lowering the price of NZ products on exports, volumes of milk are rising fast (+4.6% in August) and the GDT prices have been at odds with trends in Europe for some time, and are now dragging EU prices down.

Trade/tariff wars, the prospect of a potential hard Brexit and slowing global economic growth are also feeding into a somewhat less positive sentiment – all the more so when traded volumes were stronger in the first half of the year than they are now.

The normal bounce from the “holidays” demand (Thanksgiving, Christmas…) has been limited.  Stocks of butter have been rebuilt, and so prices have eased – though the expectation is that lower milk output over the winter and early part of 2019 will likely help prices recover.

Meanwhile, from an Irish milk price perspective, stability should be the worst case scenario between now and year-end.


CL/IFA/15th Oct 2018

A mixed outlook – modest output growth, but moderating prices

Global milk output growth has continued to moderate into July, indicative most of all of the impact of drought and heatwaves in Europe.  More modest US growth (+0.4%) also played a part, and a drop in Australian production for July (down 4.2%).  Fodder is short and feed expensive in Australia due to unfavourable weather factors.

Meanwhile, July New Zealand output was well up (+4.5%).  July is the first month of the new season, and the outlook is expected to be for strong continued output over the coming months, with a strong pasture growth index at a 5-year high. NZ production is due to peak in October, which is only next month.

Source: USDEC

An Oceanian/European-US split on dairy prices

While we continue to see firmer dairy prices being held in Europe, and to some extent the US, Oceanian prices, especially as measured through the GDT auctions, have eased considerably in recent months: the last strongly positive GDT auction was on 15th May last, and the latest today fell by an average of 1.3%.


Source: GDT

Meanwhile, EU dairy prices had picked up, but there is now a little bit of weakness creeping in, as is evident most of all from spot quotes.

Source: FCStone International

In addition to the EU dairy spot quotes from Germany, the Netherlands and France, the EU Milk Market Observatory reports weekly on the spot price for raw milk in Italy and the Netherlands.

This had increased significantly since February with a few dips in the curve, but both indicators have eased in recent weeks, to €40.3/100 kgs for Italian raw milk, and €36.5/100 kgs for Dutch raw milk.

Average dairy prices reported by EU Member States through the EU Milk Market Observatory, on the other hand, in the main continue firm up to 9th September, the most recent date for which data is available.

Butter has lifted above €5600/t, while SMP continues over €1600 for the second week in a row.

Cheddar cheese is steady, while whey powder also holds its own after a good €50/t improvement since early August.

Based on EU MMO data

Irish/Euro returns above Irish milk prices

The Ornua PPI for August has increased by a significant 3.8 points to 111.1 points as Irish SMP prices in particular catch up with rising EU average levels.  The Ornua-calculated milk price equivalent is 33.5c/l including VAT – this is 1.5c/l more than what the three main milk purchasers are currently paying.

Source: Ornua

So, combining those various indicators to calculate a milk price equivalent, net of VAT, is summed up in the table right, with our more usual analysis of EU average market prices, both using Irish SMP and butter prices as reported by EU MMO and using the EU averages, outlined below.

Sources: EU MMO; FCStone International, Ornua, EEX, GDT


Based on EU MMO data

In summary, the main European indicators, including the Ornua PPI, would suggest the scope for milk price increase.  It makes the Irish co-ops’ cautious August decisions all the more disappointing, as apart from Aurivo who increased milk prices by a modest 0.5c/l, all those that have announced their August price as we write have opted to hold at July levels.

As farmers’ cash flow are stressed by massively increased by feed and fodder expenditure, it will be important for co-ops to pass back the maximum possible for milk to encourage farmers to keep cows fed and the milk flowing!


CL/IFA/18th September, 2018

Weather events continue to moderate US and EU milk output into Summer

Milk supplies for April 18 lifted a little for the EU 28, at +2.1%. In the US, the growth was quite modest for April (+0.7%) and in May (+0.9%).  Together with a 4% increase for April/May 2018 in New Zealand, this has led AHDB to predict a slight recovery from the trend to March.
However, I would venture to guess that dry and hot weather in North Western Europe, and wet weather in other parts of Europe in May and June will probably moderate growth in the EU 28 again for those months.

Source: AHDB Dairy

Commodity prices strengthened through June – easing somewhat now

EU and international commodity prices have been strengthening since the beginning of the year, in response to strong demand and moderate production growth, especially in the EU 28.

EU average dairy commodity prices as reported to the EU Milk Market Observatory (EU MMO) at 24th June (most recent available as we write) suggested a gross return before processing costs are deducted of 37.93c/l for a reasonably representative Irish product mix.  This was despite a slight easing that week of butter, SMP and WMP prices. After deduction of a nominal 5c/l processing cost, this would be equivalent to a price level of 32.93c/l + VAT (34.70c/l incl VAT).

Based on EU MMO data

The Ornua PPI for June also showed improved butter and SMP returns, rising from 105.4 points for May to 109 points for June.  This is equivalent to a price level – as stated by Ornua – of 31.1c/l + VAT (32.78c/l incl VAT).

Source: Ornua

In recent days, however, some commodity prices have eased a little, influenced by 3 consecutive negative GDT auctions.
Spot prices have also eased, as have futures markets for the main commodities (butter and SMP).

For all that, the combined GDT average price for SMP and butter based on 3rd July results would yield a gross return of 34.64c/l and a price equivalent at Irish constituents of 29.64 c/l + VAT (31.24c/l incl VAT). 

Source: GDT

Most recent European cash market (spot) quotes for butter and SMP (4th July 2018), though slightly easier,  would nonetheless yield a gross return of 39.57c/l and a milk price after deduction of 5c/l nominal processing costs of 34.57c/l + VAT (36.47c/l incl VAT).

Source: FCStone International

Price increases expected, needed and justified for June milk

All these indicators would suggest that a price increase is well and truly justified for June milk – as well as being badly needed by farmers who are now again struggling with fodder shortages, this time due to drought!  What a challenging year 2018 will have proven for dairy farmers!  A market based price increase on June volumes will go a long way to support farmers’ ailing cash flow as grazing grass, never mind fodder stocks, get scarce, and the cost of feed rises dramatically.


CL/IFA/12th July 2018                                      

Dairy markets: we have definitely turned the corner

With global milk output growing at much slower rates (just over 1% for March, the level analysts believe is required to rebalance markets), intervention SMP stock shifting more readily, and international commodity price indices on the up, it looks like we may have seen the last of the (base) milk price cuts for 2018.

Source: USDEC


EU dairy commodity prices as reported by the EU MMO have continued to firm.  Butter prices have gone up by over €1000/t since January, while SMP has lifted €120/t in the last month (see graph based on EU MMO reports below).


Based on EU MMO data

SMP stocks moving at last

SMP prices seem set to recover – though slowly – as intervention stocks are starting to move in earnest at long last.

In the most recent tender, which closed 15th May and was adjudicated yesterday, the EU Commission received bids for 124,360t, with prices offered ranging from €500/t to €1277/t.  The minimum price selected by the EU Commission for adjudication was €1155 – €100 above the April tender – which resulted in 41,598t of SMP being sold between the €1155 and the top price bid.  In fact, the bids exceeded the amount of product available by around 5,000t (there was insufficient stock of the right age in certain countries relative to the bids within the eligible price range).

This means that, since December 2016, over 76,000t of SMP has been sold out of intervention – of which around 65,000t in the last 2 tenders alone.

The EU Commission is expected to increase the quantities available for the June 19th tender to around 149,000t.  It will do so by bringing forward the eligibility date for the stock from product purchased before 1st May 2016 to before 1st June 2016.

Buyers are clearly engaging more with the scheme, and willing to pay more as the fresh market picks up.  This is very positive and holds the prospect that a substantial volume of SMP in intervention could be disposed of before year end.

In recent weeks, traders had been pointing out that the EU intervention stock had become largely irrelevant to the fresh market – and this was showing as SMP prices started firming slowly.

There’s a long way to go, though.  With EU average prices (13th May) averaging at €1440 and latest spot quotes (16th May) at €1490, only this week’s GDT price at US$ 2047 (€1734) exceeds the intervention reference price.

Returns inching up

The returns for the Irish product mix, based on EU MMO reported average EU prices, have lifted half a cent per litre in the last week alone.  This is largely driven by increases in butter, SMP and whey powder prices.

Based on EU MMO Data

An analysis of the most recent EU average returns, EU average spots from Germany, the Netherlands and France and the latest GDT auction earlier this week, show that these commodity prices would justify stronger milk prices than what is currently being paid by most co-ops (even allowing for the much-appreciated support top ups paid by most).

The April Ornua PPI, unchanged from March at 100.4 points (equivalent to 29.6c/l incl VAT), shows that returns available to Irish co-ops have at least bottomed out.  Many contracts will have been signed forward some weeks/months ago at prices lower than the current spots or market averages.

We would reasonably expect to see some PPI improvements in the months ahead, reflecting fresh contracts being signed at higher prices.

The PPI provided its hedging effect last autumn/winter, when it returned more than average EU prices, and this lag effect is operating the other way – at least for the moment.


Source: Ornua

CL/IFA 18th May 2018

Dairy Market Blog – 3rd May 2018

Are SMP markets on the mend at last?

SMP prices have languished well below €2000/t since June 2017, after which they staged a free-fall.  They have been below €1500 since November.  In the last few weeks, average EU SMP prices as reported by the EU MMO have first stabilised just over €1300/t, and in the last couple of weeks have even staged a small recovery to €1380 (29th April 2018).  Could it be that we’ve seen the worst of the SMP prices?

While we all hope so, there are a number of indicators which suggest that we might just be right to be optimistic.

Based on EU MMO data

While we all hope so, there are a number of indicators which suggest that we might just be right to be optimistic.

Spot markets too have been rallying of late, now reaching €1420/t on average for the Dutch, German and French quotes on 2nd May 2018.  This is around €200/t above the early April quote for SMP.


What is also very interesting to observe is the buyers’ attitude to the SMP intervention stock.  The last tender, on 17th April last, saw for the first time a significant amount of product sold (24,066 t, compared to just around 10,000t sold over the 17 preceding months).  Even more meaningful was the price at which the product sold: poor at €1051, but stable/up for the first time in those 17 months.  Furthermore, the range of prices buyers were prepared to bid at reached above the intervention reference price of €1700 for the first time since last September.  It would seem that buyers are now prepared to pay more for SMP intervention stock.  Some operators have suggested that sellers are now finding it a little easier to dismiss the relevance of SMP stock because it is aging rapidly, and is no longer real competition for the fresh stuff.  Facts appear to prove them right!

Looking at global market trends for SMP, GDT auctions over the last couple of months have shown stronger prices than even European prices. At US$1,999/t at the auction of 1st May, it would be equivalent in Euros to €1670/t.

The GDT butter and SMP price combination reached on 1st May would be equivalent to a gross Irish milk price return (before processing costs are deducted) of 35.65c/l.

Source: GDT

Positive EU price trend extends beyond SMP

Other EU dairy prices have also improved somewhat in April.
Butter prices are nearing €5200/t, a price over twice the butter price of two years ago, WMP has inched up to €2700/t during the month, while whey powder has lifted slightly to finish the month $700/710/t.  All commodity cheese prices have held up well during the month, too.

Returns in terms of cents per litre do reflect the improved average returns – however, where operators have sold on forward contracts signed some weeks back, those would have been at somewhat lower prices.  Hence the Ornua PPI may well end up trailing slightly the EU average returns over the coming weeks, just as it was slightly ahead of them when prices started to ease in the last quarter of 2017.

Based on EU MMO data

EU returns at end April equivalent to 30c/l + VAT

Taking account of recent price improvements, the average returns before processing costs for a representative Irish product mix based on the most recent data for 29th April quoted by the EU MMO now exceeds very slightly 35c/l – or, excluding a nominal 5c/l processing cost, would be equivalent to 30.22c/l + VAT.

While co-ops may have contracts which were signed for lower returns than those, it would appear at least that those will progressively be replaced by higher priced contracts.

This should give co-ops the confidence to continue supporting milk prices, which farmers still suffering from the consequences of the disastrous spring need badly.

Based on EU MMO data

CL/IFA/3rd May 2018

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