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01 Aug 2019

Dairy Market Blog

Dairy, Dairy Markets, Liquid Milk

Global supplies fall further to May/June 2019

Global milk supplies to May were estimated by Ornua at -0.3%, with May output down 0.4%.

Chief influencers were weak to negative supply growth in Oceania, South America and the US, and only very modest growth in the EU (+0.6%) over the period.

Polish milk output, which has been almost as strongly dynamic as Ireland’s, was back 0.5% for June (note, this is their first year-on-year negative result since October 2016!).  A heatwave in June and another in July, accompanied by low precipitations, have also affected European milk production.

Germany has seen an estimated 1.5% fall in May, and 1.4% in June.  France has suffered from record temperatures in June, and milk output has fallen back 0.2% for that month, after a 1.6% reduction in May.

Dutch milk output, still moderated by herd reduction, is down 2.7% for the January to May period.

Meanwhile, UK milk production for January to June was up 2.8% (+1.3% for June, so a slowing trend), and Ireland’s up 10%.

In the US, June output was down 0.3%, continuing the subdued trend of recent months.

In New Zealand, where the new season 2019/20 has started, June milk solids output was up a whopping 13.4% following four consecutive months of reduced production.

Finally, in South America, Argentinian milk output is down 6.3% for the Jan-June period.

Source: USDEC

Demand: international uncertainty affects confidence – and yet, EU exports continue to increase

It seems that the biggest issue with demand is not about pure economics – butter prices have become quite a bit more affordable, for example – but market sentiment.

There’s a lot going on: Concerns over the increasing likelihood of a no-deal Brexit, worries over the prospect of increased US tariffs on EU dairy products (butter and cheese in particular) in the wake of the Airbus/Boeing trade dispute between the EU and the US, global economic slow-down – with the US Federal Reserve reducing its interest rates to boost the US economy, and the Chinese economy slowing down to its slowest since 1997 (+6.2 % all the same!).  All of these factors are playing into a medium term caution which is keeping forward demand in relative check.

Source: CLAL.it

For all that, EU dairy exports have continued to increase strongly for the January to May period.  The following is an analysis of those exports for the period from January to May 2019, with facts and figures from CLAL.it:

EU dairy export increased both in quantity (+8.4%) and in value (+8.8%), supported by a significant increase in May (+14.5% in value).

Infant milk formula, mainly destined for China, Hong Kong and Saudi Arabia, and Cheese, which sees the United States, Japan and Switzerland as the target markets, are the first two products in value, thanks also to an increase in the unit prices of the two products (respectively of 7% and 5%).

There has been good growth for fat filled milk powder exports (FFMP), the milk powder that has a fat content similar to whole milk powder, but instead of butterfat contains vegetable fats.  This is a very important product in the Irish export product mix.  It is intended primarily for consumers in hot countries, with strong demand in Saudi Arabia, Nigeria, Senegal, Yemen and the United Arab Emirates.

The EU-28 exported over 480,000 tons of FFMP in January-May, for a value close to 900 million euros (+11.3% in quantity, +10.8% in value).

SMP exports reached 435,000 tons in the same period (+32.3% on a trend basis) and exceed 822 million of euros (+41.8%).

EU-28 WMP exports have fallen both in quantity (-24.1%) and in value (-16.9%), in the first 5 months of 2019.

Milk and cream export increased +19.1% in quantity and +13.5% in value. The main destination country is China, accounting for 42% of total export, followed by Libya, South Korea and Mauritania.

Dairy market prices – GDT prices pick up, weaker butter in EU

The 16th July GDT auction saw a strong recovery of most product prices, but especially the strongest trading ones, namely WMP and SMP.

These latest increases mean that the GDT price for SMP is now 9% above the EU MMO average, while GDT butter is 2.5% higher.

Source: GDT

Meanwhile, EU prices as reported by the EU MMO present a mixed picture.

Butter is weaker, down 13% since January, but at around €3800-3900/t still remains at the higher end of the price trend in the last 20 years.

SMP prices have increased over 17% since January, but remain just about at the average historical level at around €2000/t, with likely scope to increase further, given the right supply/demand circumstances.

Whole Milk Powder prices on average in Europe have increased 7.5% since January, while Cheddar cheese prices have remained relatively stable at between €3100 and €3080/t.

Finally, whey prices, which always make an important contribution to the returns from cheese, have eased by 15% since the beginning of the year.

Based on: EU MMO Data

Based on EU MMO Data

Source: INTL FCStone

July indicators do underpin current milk prices

We have documented in our most recent Dairy Market Blog that all co-ops except the West Cork co-ops have paid milk prices below the Ornua PPI milk price equivalent for most of the last 9 months.

Current returns, while somewhat easier, including the slightly lower June 2019 Ornua PPI, would justify July milk prices of 30 to 31c/l + VAT (31.62 to 32.67c/l incl VAT).

With current (June) milk prices averaging 29.73c/l + VAT based on the Farmers’ Journal Monthly Milk Price League, current returns should allow co-ops to hold July milk prices at the very worst.

Most of the largest milk purchasers are in fact paying nearly a ¾ of 1 c/l below that level, at just below 29c/l, and those are among the milk purchasers who undershot even the PPI milk price equivalent for most of the last 9 months – for more details on this, see our previous Dairy Market Blog of 15th July last.

 

 

 

CL/IFA/1st August 2019

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