Dairy Market Blog

Dairy Market Blog
24 Jan 2015

Dairy Market Blog


Green shoots in EU as well as GDT? 

20th January GDT auction third price increase

GDT 20th Jan

The GDT auction of 20th January was remarkable in that it was the third time in a row the weighted average price rose, but most importantly because it confirmed the rising price trend for powders and protein (Rennet Casein) as well as butterfat.

Since early November, AMF prices have increased by 30% (with a small dip at the last auction), butter by over 42%, buttermilk powder (BMP) by 5.5% and Cheddar cheese prices by 8.5%. Rennet casein has increased by over 7%.

In the last three auctions, SMP prices have risen by nearly 4% and WMP prices by 8%.

It is tempting, and credible, to think that global markets at least have started to recover – albeit after falling more than 50% during 2014.

GDT results last 5 auctions

Based on: GDT auction data

GDT prices now dearer than EU’s for SMP and butter

A combination of fast rising GDT butterfat prices and the weakening of EU dairy prices over the last number of months, together with a weak Euro, has now led to a situation that GDT prices for butter and SMP are now higher in US$.

EU SMP had been very competitive on the world market for quite some time. Butter is now also exportable competitively, which has helped tighten the market in Europe, and explains the small increases in EU butter prices experienced in the last couple of weeks.

eu v gdt prices

Based on: GDT and EU MMO

Milk supplies still on the up – but growth slowing in most regions

Meanwhile, superlevy, falling milk prices and reduced profitability is reported to be resulting in culling of marginal cows and a reduction in feeding – all of this slowing down the milk growth in the EU.

In the UK, output growth has also slowed to 3% in January. Weak markets and a strong sterling has also precipitated sharp milk price cuts.

US growth continues unimpeded, as despite a sharp fall in spot milk prices, many farmers have locked in better milk prices and margins.

In New Zealand, though supplies to end December were up 5.5%, growth is slowing down as poor prices encourage farmers to cull poor performing cows and reduce complementary feeding. In addition, drought has started to affect production in the South Island.

Australia is also starting to suffer from drought slowing growth, which was down to +3% in November from +6% in October, and +3.5% year todate.

In other parts of the world, Chinese domestic production, which is high cost at around 45c/l is under pressure from lower priced imports around 20+c/l, leading to increased cow culls on small farms. In Argentina, it is not drought but excessive rains which are holding back milk production, with production back 6.8% for October, and 3.8% for the year. In India, insufficient monsoon rains are expected to impact milk production in the first 6 months of 2015.


World milk supply growth – total and in main dairy exporting countries – Jan to Nov 2014

 world milk supply growth

EU milk supply growth – Jan to Nov 2014

eu milk supply growth

Source: IDB and various sources

EU dairy product prices stabilising?

After a few weeks of relative stability, EU average prices reported by the EU Milk Market Observatory for butter, SMP, Cheddar and whey powder have edged up in the last week. This is not very significant, and remains within the remit of the sort of fluctuation we have seen in recent weeks.

However, there are now reports that dairy buyers in Europe have been trying to lock in contracts for SMP purchases at current low prices for the longer term, but, especially in Germany, sellers are not biting.

Official quotes from the Dutch Dairy Board have increased in the last couple of weeks for the first time since August last. The German agri-consultancy IFE, which calculates a price equivalent based on German, Dutch and French SMP and butter prices, have increased their index by nearly 0.5c/l.

Could it be that the global trends are making European sellers more determined to get greater value for their products? If so, here too we could be looking at the early stages of a price recovery – though it is too early to say.

EU average product prices

Source: EU MMO

Weak Euro boosts exports – and helps strengthen EU butter prices

A significantly weaker Euro is making our dairy exports more competitive on the world market, where sales are generally denominated in US $, and also on the UK market.

Against the US $, the Euro has lost 17.5% in the last 12 months, as per the first graph below, reportedly a 9-year low. Against Sterling, it has lost just under 9% in value over the same period (see second graph below).

Lower prices, further boosted by the weak currency, have helped butter export sales, which are now reported to be priced around $200/t below GDT. Stronger export demand is part of what has resulted in a slight increase in butter prices reported for the last week or two in Europe.

US$ exch rate


Sterling exch rate



CL/IFA/23rd January, 2015

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