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24 Mar 2016

Dairy Market Blog

Dairy, Dairy Markets, FMP, Liquid Milk

Small pick-up or stability in many EU dairy quotes follows doubling of intervention ceilings

Dairy prices for w/e 13th March, possibly in anticipation of the decision by the EU Agric Council to double intervention ceilings for SMP and butter (see below), have seen a little pick up in butter, whey powder, cheddar cheese, and have seen stability for SMP.

For this week, official butter spot quotes from the Netherlands (PZ) are marginally firmer at + 0.42%, while German Kempten and France’s Agrimer spot quotes are stable.

SMP spot quotes from the Netherlands were up 2% for feed quality, and stable for food quality.  German Kempten quotes were up 1.4% for food grade product in 25kgs bags.

French, German and Dutch spot quotes for whey powder were stable.  UK PTF Cheddar cheese quotes were down 2.7% for this week.

Finally, French Agrimer quotes for WMP were up 1.66%, while ATLA quotes were stable.

EU dairy product prices to 13th March

 

Based on EU MMO data

Returns remain challenging

Milk output globally was about +1.4% up for 2015, and this momentum continues into January 2016 at the same rate. EU supplies were up 2.5% for the calendar year 2015, and estimated at +4.9% for January.  US output was only up 1.4% for 2015, and 0.3% for January 2016. New Zealand, Australia and Argentina were all down for Jan 16, by 2.1%, 3.8% and 1.3% respectively.  New Zealand projections for 15/16 are for a 4% decrease – significantly less than expected earlier.

Together with still sluggish demand (though there have been significant increases in imports in recent weeks – see below) this has meant that dairy prices have yet to recover in any significant way.

EU average gross returns for week ending 13th March, even allowing for the positives outlined above, were only marginally up on the week previous at around 26.4c/l before processing costs for the main commodities.

In New Zealand, there are concerns further to a stress test by the Reserve Bank that commercial banks may suffer billions of NZ$ in write offs because of the dairy downturn.

EU Agriculture Council decisions on dairy intervention should help stabilise markets Council_of_the_European_Union.svg

Intervention ceilings doubled to 218,000t for SMP (from 109,000t) and 100,000t for butter (from 50,000t).  Beyond the max, tendering system comes in which can (and has) drive prices below the full price – so this gives stability at a low level, and hopefully will send a message to the market (the above would suggest it might just be doing that).
Only SMP is being sold into intervention – approx 113,000t since it reopened in Sept, with over 9,000t per week going in in in last 3 weeks.   Average EU SMP prices are €50/t below intervention.  Average EU butter prices are still around €422/t (13th March) above intervention, so there is no butter going in at the moment.

There was no Agri Council decision on APS, but an indication that flexibilities on SMP and cheese would be explored and dealt with by Management Committee in coming weeks to provide additional market support.  20,000t of SMP have gone into the new enhanced 365 days Private Storage (APS) scheme this year so far.  Stocks at the end of January were just under 35,000t, butter APS stocks at same date were around 60,000t.  Product in APS storage comes in and out, so multiples of these figures would have been taken into the schemes at various times since they were first opened in the autumn of 2014.

Voluntary supply management may be introduced by Member States under certain conditions (under Article 222 of EU CAP Common Market Organisation regulation 1308/2013), but no EU funding for this.  For more details on this, please see my article on the IFA website at www.bit.ly/1Pte7ns

Financial instruments EU Commission and the European Investment Bank invited Member States to do what it takes to tap into the EU financing opportunities for competitiveness, growth and jobs in the rural and agri sectors.  This is a complex process, and IFA has been pushing for the Irish government and banks to explore every possible way to tap into this for cheaper finance for farmers, improving competition in the Irish financial market.

A temporary increase in state aids was approved allowing Member States to make contribution to farmers up to €15,000 per year for 3 years.  IFA believes this should be utilised by our government to pursue the IFA’s tax proposals to help farmers deal with income volatility.

Export credit insurance schemes are to be developed, as well as additional efforts to reopen trade with Russia, promotion of EU products through trade deals and promotion (promotion commitments are for within the EU and on export), and fight against non-tariff barriers.

Big increases in global dairy imports in late 2015 and 2016international trade

Recent reports from GTIS have shown significant increases in global dairy trade in recent months, albeit on the back of low priced products.  However, this ought to make a difference in terms of rebalancing demand versus supplies.

Latin American import volumes increased 1% in November compared to 2014, with most major dairy categories up. Imports for the 12 months to November were solid, however, increasing 12% 0- with WMP up 40%, SMP up 26%, cheese up 11% and infant formula up 9%.

Imports by the countries of the Middle East and Africa increased 3% in November. WMP demand was up 20% and cheese 7%, although fluid and fresh dairy and SMP were both down -5%.  For the 12 months to November 2015, imports have increased 2%, largely due to WMP up 14%, and fluid and fresh dairy up 6%. But SMP was down 8% and butter down 2%.

As reported in my previous blog, imports rose in China by 51%, with all categories well up.

For the 12 months to January, imports were up just 1% compared to the same period the previous year, with infant formula up 47%, fluid and fresh dairy up 45% and whey powder up 13%. Chinese WMP imports for the full year were down -39% and SMP down -13% – but the Jan 16 figures might be the beginning of a reversal in that powder import trend.

Asia outside of China increased imports by 8% increase in November compared to 2014, with increases in whey powder – up 23%, WMP – up 19% and cheese up 7%.

Imports for the 12 months to November were up 8% compared to the same period the previous year. This is due to increases across most major dairy categories including SMP – up 14%, cheese – up 10%, WMP up 8% and fluid and fresh dairy – up 7%.

 

CL/IFA/24th March 2016

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