GDT and EU spot prices looking up… a bit

In what remain very weak markets, this week saw some improvement in both the GDT auction price and EU spot quotes from France, Germany and the Netherlands.

At the GDT auction of 17^th May (yesterday), the weighted average price rose 2.6%.  The event only traded a total of 18,113 t of product, 32% back on the same auction last year.  Trading such small amounts of product relative to what is traded globally, it is always worth remembering that its results should not be over interpreted – whether they go up or down.

What is most interesting is that WMP prices have been consistently up for the last 4 auctions, rising 14% or the equivalent of 3c/l from very low levels since mid-March, and WMP is both what is most traded on GDT, and globally.

Source: GDT

EU spot dairy commodity prices have also been looking up week on week for the last 3 to 4 weeks – again from very low levels.  Most EU spot quotes for SMP, for example, remain somewhat below intervention equivalent.  So while the new is welcome, it has a long way to go to become a trend likely to impact prices positively.

Source: FCStone

Global output continues to rise – but more slowly in some regions

Source: Ornua

EU milk production – Some countries moderate output, others don’t

France is down

French milk supplies, as recorded by France Agrimer for the last week of April show a significant downturn, both against previous week (-0.8%), same month in the previous year (-1.3%), and perhaps most significantly, against the 5-year average (-1.7%).  This trend has been clear throughout the month of April, reflecting the cold early spring in NW France, and higher cow culls early this year (see second graph below, which tracks the number of cow slaughtered, both dairy and suckler).

Source: France Agrimer

Source: France Agrimer

Germany – still up, but with likely lower growth ahead

German milk production for the period since the beginning of the year has been increasing somewhat – but as against months that were artificially constrained by quotas.

Hence, while production in recent weeks was well above 2015 levels, it was barely at the 2014 equivalent level, as shows in the graph below.

Output for week 16 (penultimate week in April) were 2% above same week in 2015, but only 0.1% above the same week in 2014.  Also, output has been growing more slowly in the last couple of months.

Source: ZMB

Since the beginning of the year, cow cullings have also increased substantially in Germany – 16% more than for the first 17 weeks of 2015 and 13% more than in the same period in 2014.  This would suggest that output growth will only continue at a reduced pace over coming months.

Source: ZMB

Netherlands – on the up still

Dutch production for March was up 17%, while April figures – the first against a non-quota comparator – were 10.8% up on April 15, and 12.7% when compared with the same month in 2014. This continued trend reflects anticipated investment for expansion ahead of the implementation of some new restrictive environmental regulations – which in theory at least may lead to a slowdown in growth later on.

UK – falling to online with 3-year production average

Whether or not you include NI ( UK v GB) makes little differences to the trends apparent in UK milk output.

According to AHDB Dairy, UK daily deliveries for the two weeks ending 07/05/2016 averaged 42.5m litres/day, 2.0m litres/day (4.5%)  lower than the same period last year. Daily deliveries for this period were 0.3m (0.6%) higher compared with the 3-year average.

For the two weeks ending 07/05/2016, GB daily deliveries averaged 35.6m litres/day and were down 4.5% (1.7m litres/day) from the same period in the previous year. Daily deliveries for this period were 0.2m litres/day (0.5%) higher compared with the 3-year average.

Source: AHDB Dairy

Further afield – the picture is also mixed

New Zealand – down, but by less than expected

Fonterra have just confirmed that NZ 2015/16 season output is down 3.2% by end April, all down to a 6.4% production fall in the South Island, and a small increase (1.1%) in the NI.  This remains less than the 4% fall back forecast earlier (and much less than the 10% forecast even earlier!) but more than the two percent mooted most recently.

Source: DCANZ

USA – up again

ERS services of the USDA report that March 2016 output was 2% on March 2015, with the Jan-March production up 2.1%.

Low input prices are contributing to sustaining margins and output growth despite low milk prices well below US$14/lb.

Source: USDA

Australia – well back as milk prices collapse

Australian milk production was down 4.6% in March, a run of negative since October 2015.  Production for the season June to March was down 1.1%.

Recent severe milk price cuts have eroded massively the profitability of milk producers.

In Murray Goulburn, one of the main milk purchasing co-ops with particular interest in liquid milk, the CEO had to resign after leading farmers to expect unjustified better milk prices, leading to a situation where the co-op is now trying to recoup the excessively high prices paid in recent months – and this at a time when cash flow and margins are negative on most farms.

More info about this disastrous story here: http://www.smh.com.au/business/murray-goulburn-milk-farce-why-werent-the-farmers-told-20160513-gouoqq.html

Source: Dairy Australia

CL/IFA/18^th May 2016