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22 Dec 2014

Dairy Market Blog

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Is the latest GDT signalling the beginning of a global recovery?

Christmas cow
While supply and demand remain out of kilter globally (see below for latest output growth estimates), the most recent GDT auction (16th December) saw a 2.4% increase in the weighted average price for dairy commodities traded for the period from January 15 to June 15.
Even more significantly, butterfat prices have staged a very strong rally over the last three auctions, with butteroil (AMF) increasing by 27.5%, or US$ 900/t and butter prices by 25.5% or US$ 600/t within just over a month and a half.
While those remain relatively low prices, the sustained nature of the increase and its level is a good indication that butterfat prices could be starting to recover in earnest. Powders, on the other hand, have a way to go.

Full GDT results can be found at http://www.globaldairytrade.info/en/product-results/

 

Milk supplies continue to grow into October

 
All the main milk production regions have continued increasing output into October 2014.

In percentage - evolution of global supplies

As absolute amounts - evolution of global supplies

Sources: DairyCo, IDB

Within the EU, supplies have been increasing in all the main milk producing member states, though milk output growth is expected to ease in at least some of them with winter setting in, and expectations of massive superlevy fines encourage farmers to ease back before April.

EU milk supply increases

Sources: DairyCo, IDB

EU exports: Russian ban impact lingers, but weak Euro helps exports to other destinations

 
The weak Euro means that European exports of powder in particular have improved their competitive appeal. Chinese demand for powder is benefiting Europe at the moment (and Ireland, see previous blog) – albeit with levels of buying much lower than this time last year.
Latest trade figures reveal a EUR60 million loss in earnings in the three months since the embargo was introduced in August. This is based on the difference between last year’s and this year’s earnings only.
Around 11,000 tonnes less hard and semi-hard cheese was shipped to third country customers in October. Last October, Russia took 17,000 tonnes during the month.
Mexico, Japan and the United States all took more cheese than in the year before.
There was also a substantial increase in sales to Belarus – Russia’s ally and leading dairy supplier. But EU cheese exports to Belarus amounted to only just over 1,000 tonnes during the three months from August.
Demand in Ukraine, whose economy has been rocked by the crisis, has also eased, and Ukraine imported far lower volumes of cheese from the EU.
EU Butter exports have actually increased in the three months of the ban, by an average 10%, with greater sales to Saudi Arabia in particular, but also the United States, Iran and Turkey and even China. This is understood to have compensated very significantly for the losses incurred on butter to Russia.

 
EU commodity prices weak

 

EU avg commodity prices 14th Dec 2014

Source: EU MMO

 
EU average commodity prices have generally continued to ease in recent weeks, though there seems to be some evidence that the Private Storage scheme for SMP and butter is providing some support. Interestingly, the average prices reported for butter and WMP for 14th December (most recent figures available as we write) are up a very modest 1.4% and 2.1% respectively relative to the previous week’s price.

EU avg returns 14th Dec 2014
Source: Calculations based on EU MMO

 
EU average prices on 14th December, the most recent available from the EU Milk Market Observatory (EU MMO) returned roughly the same as the week previous, at approximately 33.2c/l gross (before processing costs).

CL/IFA/22nd December, 2014

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