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28 Apr 2016

Dairy Market Blog

Dairy, Dairy Markets, FMP, Liquid Milk

EU milk growth slowing?

Those who are analysing global milk output closely have realised two things: first, 2016 was a leap year, and it is difficult to compare one with the other, unless you adjust for the extra day.  Second, comparing output over the last few months and right out to the end of March, with the same months in the previous year is skewed by the fact that the last months of 2014 and the first quarter of 2015 were severely restrained by superlevy.

When you allow for both those things, as have the UK’s AHDB in the graph below, you see that the growth has slowed down in recent months, from around 5% over previous year to around 3% for the last couple of months.

This assessment is based on the figures currently available from the EU MMO which cover up to February 2016.  With a 2 month lag, it will be June before we can get a feel for April figures – the first we will be able to measure against a post-quota comparator in 2015.

EU milk production slowing down

Source: AHDB based on Eurostat

Some countries have shorter deadline indicators, however.

In Ireland’s case, a survey in this week’s Farmers Journal suggests co-ops are seeing a steep reduction in April supply growth due to the cold spring and poor milk prices, with expectations that at least in some co-ops output may be slightly down on or no more than on par with April 15.

Indeed, it seems the cold spell is affecting much of Northern Europe, and affects more than Ireland.

France Agrimer reports that national output in mid-April was down 2% on the same week in the previous year, with some of the main production regions (Brittany, Aquitaine/Limousin/Poitou-Charente) down by as much as 4.8%.

In the UK, AHDB report that UK milk deliveries for the two weeks ending 16/04/2016 were 2.1% lower than the same period last year, though they were 3.0% higher compared with the 3-year average.

Also, UK cow culling has increased, and is now greater than replacement rates, with a consequent reduction in the national dairy herd.  They estimate there was 7,500 fewer dairy cows 2 years or older in the last quarter of 2015 than the previous year.

Fewer UK dairy cows

Source: AHDB

In Germany, on the other hand, deliveries for week 13 (late March, early April) were 3% up on the same week in 2015 according to ZMB.

But as the EU is currently contributing most of the surplus production on world markets at the moment, news that growth is slowing is important news.

Milk output elsewhere – NZ output falls less than expected, US continues up

New Zealand production was down 0.8% for March, and for the June to March period down by only 1.7% – far less than the most recent forecast by Fonterra of -4% for the full season, the end of which is only 2 months away.

US output, meanwhile, continues to increase.  USDA reports for Jan/Feb 16 v 15 for the 23 main states was up 0.6%, and early reports for March suggest production was up 1.8% that month compared to the same month last year.

In their April report, Ornua estimated the overall global output growth in the key exporting regions to be up 2.5% – but this included a possibly overstated EU situation, if the AHDB assessment above proves correct and EU growth is actually slowing down.

World milk production

Source: Ornua

EU commodity prices weak – but small pick-up in the last week for some products

The most recent average dairy commodity prices available from the EU MMO are for the week ending 24th April 2016.

SMP prices have clearly been stabilised by the doubling of the intervention ceiling – though they remain at a level around €50 below the intervention buying in equivalent (€1650/t v. €1698/t).

Previous weeks had seen a steady easing of most dairy prices.  The most recent figures show some firming of EU butter prices (€30/t), WMP (€50/t) and most of all cheddar cheese (€80) – also Emmental (€70/t) – does not appear in the graph below.

EU dairy commodity prices

Based on: EU MMO data

The prices above, weighted to reflect a theoretical Irish product mix, would suggest gross returns for 24th April of just under 27c/l (before processing costs) – so a net farm-gate equivalent including VAT would be just over 23c/l (assuming 5c/l processing costs).

EU dairy returns

Based on EU MMO data

It would be reasonable for Irish farmers to expect that their co-ops, especially those that have innovated and invested in recent years, would be able to achieve slightly better than average commodity returns, for at least a percentage of their output – e.g. branded butter, high spec powders, whey powder based nutrition products, ingredients for specialist nutrition customers and infant formulae, etc.

Chinese WMP imports continue to grow in 2016

We had flagged it for January, and strong Chinese WMP imports have continued through the first quarter, up 23.6% in volume over the period compared to the previous year.

Algeria has also increased imports during 2015, though the figures below do not reflect the more recent period.

Egypt, and some SE Asian countries have also increased strongly their WMP purchases on global markets.

Chinese WMP imports

Source: GTIS via Agra-Net Dairy Markets

China has also increased its butter imports by 71% or nearly 10,000t in volume, and cheese imports by 58% or 2,400r albeit from low levels for both products.

GDT outturn positive in April

April GDT auctions have thankfully changed the trend of previous months, with particular recovery in WMP prices (the most important product traded through GDT).

Quantities sold at the last auction, at 21,206t were 17% lower than the same auction last year, and 6.5% less than at the previous auction on 5th April 2016.

It is important to remember that only a fraction of all product traded globally passes through GDT.

Hence, for example, global trade of WMP amounted in 2015 to approx 2.5 m tonnes, of which only 370,000t or just under 15%, were sold through GDT.

Also, these quantities are actually reducing year on year, as is evident from the four graphs below, which focus on powders (top two) and butterfat (bottom two).

GDT quantities last 5 years

 

Source: GDT Quarterly March 2016

The next auction is on Tuesday next (3rd May), and as yet there are no indication of what quantities may be offered, though the seasonal trend evident in the graphs above would suggest that it would be slightly lower.

latest gdt results

Source: GDT

Though the last auction was on 19th April, nearly 10 days ago, this change of trend continues to influence NZ dairy futures markets, especially for powders (see table below)

NZX

Source: NZX via Agri-Net Dairy Markets

24/7 trading comes to GDT for “high quality” dairy products

From June 2016, Global Dairy Trade will be offering, in addition to the twice monthly auction – which will continue – an option to trade through GDT Marketplace, 24/7.  This will allow trade of all “high quality dairy products” without minimum quantity requirements.

Eric Hansen, Director of GDT, said “This platform complements GDT Events (the normal bi-monthly auction), which continues to be best suited for trading large quantities of standard dairy products”.

It will be interesting to see how this additional trading platform affects global market sentiment – hopefully it will show that there is more to global trade than low priced, basic commodities!

 

CL/IFA/28th April, 2016

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