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16 Aug 2016

Dairy Market Blog

Dairy, Dairy Markets, FMP, Liquid Milk

Two massive GDT increases in August – recovery has taken hold!

The first GDT auction saw average prices lift 6.6%, while the second came in today at +12.7%, with strong price performance for all products.   This second auction involved strong price increases for all products, most notably WMP (+18.9%) and butter (+14.1%).  While the SMP price uplift, at 3%, is more modest, it is nonetheless meaningful.

While the annual quantities traded through the auction have decreased by 25% in the last 2 years or so, its bi-monthly results remain a deciding influence in buyers’ decision making, and therefore in market sentiment.

The outcome of the last two auctions is a clear indication that the 2-year slump has truly come to an end, and that the market recovery has taken hold.

GDT 16th Aug

Source: GDT

Looking at the evolution of the GDT prices in the last 12 months, it is clear that the slump of the last two years is now truly over.  Powders had been the most problematic – they together with butter are also the most traded products in the auctions.  However, between the second auction in August 2015 and today’s auction, prices have increased by  1/3 for SMP, by over 45% for WMP, and by 29% for butter (see table below).

GDT analysis

Based on: GDT data

EU MMO shows dairy prices continue to rise

The GDT developments have also been reflected at EU level.

EU average commodity prices, as reported by the EU MMO every week, showed continued growth over the last few weeks.  Indeed, butter, cheese and whey powder prices have increased at a much faster rate in the last week of July and the first week of August (see graph below).

EU price graph

Based on: EU MMO data

When you look at each commodity tracked by the EU MMO, you see that all without exception have increased substantially since early May, which marked the bottom of EU dairy prices.  Emmental and SMP saw the most modest increases, at 2.74% and 6.19% respectively – though this has lifted SMP just above intervention levels.

Whey powder prices have risen most of all, by 38%, with WMP next for powders with 17%.  Among the cheeses, Edam cheese prices have increased most of all by 22%, with Gouda next at 14% and most relevant to Ireland Cheddar up just over 11%.  As already stated, Emmental rose by a more modest  2.7%.

EU price table

Based on EU MMO data

The increases we have seen for the last 3 months have yielded a gross return for a representative Irish product mix before processing costs of 30.38c/l.  Assuming a processing cost of 5c/l, this would be equivalent to an early August farm gate milk price of 25.38c/l + 5.2% VAT = 26.7c/l.  While this is a snapshot, and bearing in mind that most co-ops have paid a little more than the market returns for the last number of months, it augurs well for further milk price increases after those implemented by Lakeland, Glanbia and Arrabawn (Those  co-ops to have announced a July milk price as we write).

table of eu returns

Based on EU MMO data

Official Dutch quotes (see below) are also showing a major improvement in the price trend since early January.  +20% for butter, unchanged for WMP, up 6% for SMP and over 33% for whey powder.

Official dutch quotes

Source: LTO

Spot prices – the price for a certain amount of product at a point in time –  are as usual leading the trend.  On 31st July, the most recent information available for the Italian spot milk price, this had risen steadily since May to €34/100kgs (34c/kg, or 35c/l).  Over the same period, by 7th August, the Dutch spot price had increased to €28.5/100kgs (28.5c/kg or 29.35c/l).

Spot milk prices

Source: EU MMO

Ornua PPI rises for the first time in 16 months

The July PPI, has lifted by 0.8 points from 81 points for June to 81.8 points for July.  This, according to Ornua’s own calculations, is equivalent to a milk price including VAT of 22.8c/l.

 

Ornua PPI Jul 2016

Source: Ornua

Milk prices around the world – still at low levels, but some starting to lift

The monthly LTO review for June shows an average EU price 0.18c/kg below that paid in May.

That said, Arla, DMK and Friesland Campina have all held their milk prices. Only Muller and Danone have increased their June milk price, by 0.5c/kg of milk.

Dairy Crest have announced a 1ppl price increase for September, and now a number of Irish co-ops – Lakeland, Glanbia and Arrabawn, have announced a July price increase – and this should put pressure on others to follow suite.

LTO league

Source: LTO

CL/IFA/16th August 2016

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