Dairy Market Blog

Dairy Market Blog
31 Jul 2014

Dairy Market Blog



Second meeting of the EU Milk Market Observatory Economic Board

On 24th July, the second meeting of the EU MMO Board was held. The following is a summary of the conclusions from the market experts from European farm organisations, dairy industry, trader organisations and EU Commission representatives who attended:

  • Downward pressure on producer milk prices since March due to higher supplies in NZ, EU and US.  After May peak, commodity and spot prices started recovering, but lag in milk price response.
  • Availability and cost of grain is good.
  • Milk supplies will grow more slowly in 2nd half of the year.
  • Household consumption stagnating, except for butter/cream for cooking/baking.
  • Industrial buyers not expected back on market before September.
  • Butter market balanced and prices relatively stable.
  • Cheese undergoing strong recovery.
  • El Nino event – no certainty yet re. impact on world supplies.
  • SMP stocks (production + imports – consumption) rising to oversupply levels from April 14, with change in trend expected from July/July.
  • Butter stocks at normal levels as at April 14.
  • Cheese (Gouda) stocks deemed slightly above normal for April 14, but well down on 2012 oversupply levels.
  • Russian imports stable for cheese and rising for butter, despite political situation.
  • Algerian imports of SMP and WMP up.
  • Demand steady with good long term prospects for Indonesia, Malaysia, the Philippines, Singapore and the rest of SE Asia.
  • World stocks up at end of Q2 2014 in producing regions, with uncommitted stocks reported in some importing regions.
  • Demand will rebound when buyers feel the floor has been hit.
  • 2012-June 2014: dairy investment in Europe €5.5b, 190 investment projects, 120 companies. Chinese and NZ as well as European companies investing in Europe.
  • Majority of those investment projects are for dry products.

The EU MMO data can be accessed at the following website: http://ec.europa.eu/agriculture/milk-market-observatory/index_en.htm

GDT – have we reached the bottom?

Market analysts are of the view that the commodity prices reached at the last GDT auction are unsustainable when translated into milk price equivalent – basically, they are now below cost. If buyers believe this, then there are good chances that, when they come back to markets from September, they may be prepared to pay a little more. We will be wiser on this very soon: the next auction is on Tuesday 5th August, and results can be found here: http://www.globaldairytrade.info/en/

The GDT auction platform serves a very informative role of global price discovery, and undoubtedly adds to international commodity price transparency. However, it is not necessarily directly relevant, depending on what region and markets one supplies. For Irish exporters and therefore for Irish farmers, the European market is by far more relevant.

We have shown in a previous blog that US dairy prices have held far better than global dairy prices generally.

The graph below shows clearly that, while both the GDT and the EU average market prices peaked around the same time (Jan/Feb 2014), EU prices have held up much better than GDT’s for the main commodities.

In fact, the reductions in EU dairy prices have been much less than half of those seen in the GDT results over the same period.

GDT v EU prices - Jul 14
Sources: GDT and EU MMO

EU market returns – still at levels justifying current Irish milk prices

The most recent data available from the EU MMO on EU average commodity prices as we write dates to 27th July 2014 (as on graph above).

At that point, the average EU butter price was slightly down (€70/t) compared to the previous week (20th July), SMP down by the same amount (€70/t), Cheddar cheese up around €50/t, while WMP was down €10/t and whey powder prices remained unchanged.

The upshot of those minor changes was that the notional Irish product mix we use in the tables below (and this varies co-op to co-op) still returns around 42c/l at EU average levels, and just about 1c/l less for a mix including the currently lower Irish prices for butter and SMP.

At 41 to 42 c/l, and allowing for processing costs in the region of 5c/l, prices of 35 to 36c/l + VAT – i.e. the price level paid for June milk by most co-ops – should be sustainable at least for July.

commodity returns 27th Jul 2014

CL/IFA/1st August 2014

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