Latest Dairy Market Blog

[vc_row][vc_column][vc_column_text]Output growth expected to be relatively modest

The most recent EU short term outlook report published by the EU Commission shows EU milk supplies have grown more modestly, rather than fallen due to the drought.  However, it is expected that fodder supplies for the winter will be particularly affected in Germany, Northern France and the Benelux.  Ireland will most probably has similar problems, as will the UK.  Milk supplies for August were estimated at +0.5%.

Consequently, the EU Commission has revised its projected production increase for 2018 from 1.4% to almost half, at 0.8%.  For 2019, the continued impact of fodder shortages leads the Commission to estimate production growth at no more than 0.9%.  For both years, the EU Commission expects to a very small downward adjustment in cow numbers.

Source: EU MMO[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]Global supplies for the year to August were reported 1.5% up.  The graph right shows that somewhat slower EU growth for the month of August is being compensated for by rising US and NZ production.

Source: USDEC[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]Demand good in US, SE Asia and China, but growing less fast than output

Global dairy demand forged ahead in the first half of 2018, but is now reckoned to be rising by only 1% – with global output rising 1.5%.

Demand remains good in China, though import growth has slowed for the Jan-Jul 18 period compared to the same period in the previous year.

Source: CLAL[/vc_column_text][vc_column_text]In the rest of SE Asia, demand for powders and casein has improved after a poor start to the year, while demand for cheese and butter is strong, albeit from low levels.

In the US demand is very strong for cheese and butter (after a poor 2^nd quarter), while powder demand is slow.

Mexico, Algeria, Egypt and Singapore have seen strong increases in SMP imports, with strong increases in imports of butter in China, the US and Australia.  Cheese imports to Japan and Russia have also increased strongly – Russian imports came from outside of EU, which remains embargoed.

Source: EU MMO[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]Commodity prices easing, but September returns still stronger than current (Irish) milk prices

Commodity prices in September evolved positively generally in Europe – though butter did weaken – but significantly worse in Oceania.  Commodity prices between the two regions continued to diverge, with higher SMP prices in Oceania, and lower prices for most other commodities – especially significant difference on butter.

Source USDEC

Based on data from: EU MMO

More recent trends in Europe – late September/October – suggest continued easing.  However, returns from the main commodities for 30^th September remained above 37c/l before processing costs – so a milk price equivalent of 32.21c/l + VAT (33.95c/l incl VAT) after a notional 5c/l processing cost has been deducted.

Based on data from: EU MMO[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]Outlook a mixed picture

Global output growth shows diverging trends in different regions: strong increases in NZ (and South America), relative stability in the US, and expectations of lower output at year end and new year from EU due to the impact of drought on fodders stocks.

While EU overall supplies have risen 1.7% for the January to July period, they have slowed in August, and statistics for the most recent period suggest that Germany, France and the Netherlands have seen negative growth.

While rising oil prices and a strong US$ are major positives, traders are concerned about what is going on in New Zealand: the NZ$ is very weak against the Euro, further lowering the price of NZ products on exports, volumes of milk are rising fast (+4.6% in August) and the GDT prices have been at odds with trends in Europe for some time, and are now dragging EU prices down.

Trade/tariff wars, the prospect of a potential hard Brexit and slowing global economic growth are also feeding into a somewhat less positive sentiment – all the more so when traded volumes were stronger in the first half of the year than they are now.

The normal bounce from the “holidays” demand (Thanksgiving, Christmas…) has been limited.  Stocks of butter have been rebuilt, and so prices have eased – though the expectation is that lower milk output over the winter and early part of 2019 will likely help prices recover.

Meanwhile, from an Irish milk price perspective, stability should be the worst case scenario between now and year-end.

 

CL/IFA/15^th Oct 2018[/vc_column_text][vc_column_text][/vc_column_text][/vc_column][/vc_row][vc_row][/vc_row]

[vc_row][vc_column][vc_column_text]A mixed outlook – modest output growth, but moderating prices

Global milk output growth has continued to moderate into July, indicative most of all of the impact of drought and heatwaves in Europe.  More modest US growth (+0.4%) also played a part, and a drop in Australian production for July (down 4.2%).  Fodder is short and feed expensive in Australia due to unfavourable weather factors.

Meanwhile, July New Zealand output was well up (+4.5%).  July is the first month of the new season, and the outlook is expected to be for strong continued output over the coming months, with a strong pasture growth index at a 5-year high. NZ production is due to peak in October, which is only next month.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]

Source: USDEC[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]An Oceanian/European-US split on dairy prices

While we continue to see firmer dairy prices being held in Europe, and to some extent the US, Oceanian prices, especially as measured through the GDT auctions, have eased considerably in recent months: the last strongly positive GDT auction was on 15^th May last, and the latest today fell by an average of 1.3%.

.

Source: GDT

Meanwhile, EU dairy prices had picked up, but there is now a little bit of weakness creeping in, as is evident most of all from spot quotes.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]

Source: FCStone International

In addition to the EU dairy spot quotes from Germany, the Netherlands and France, the EU Milk Market Observatory reports weekly on the spot price for raw milk in Italy and the Netherlands.

This had increased significantly since February with a few dips in the curve, but both indicators have eased in recent weeks, to €40.3/100 kgs for Italian raw milk, and €36.5/100 kgs for Dutch raw milk.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]Average dairy prices reported by EU Member States through the EU Milk Market Observatory, on the other hand, in the main continue firm up to 9^th September, the most recent date for which data is available.

Butter has lifted above €5600/t, while SMP continues over €1600 for the second week in a row.

Cheddar cheese is steady, while whey powder also holds its own after a good €50/t improvement since early August.

Based on EU MMO data[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]Irish/Euro returns above Irish milk prices

The Ornua PPI for August has increased by a significant 3.8 points to 111.1 points as Irish SMP prices in particular catch up with rising EU average levels.  The Ornua-calculated milk price equivalent is 33.5c/l including VAT – this is 1.5c/l more than what the three main milk purchasers are currently paying.

Source: Ornua[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]So, combining those various indicators to calculate a milk price equivalent, net of VAT, is summed up in the table right, with our more usual analysis of EU average market prices, both using Irish SMP and butter prices as reported by EU MMO and using the EU averages, outlined below.

Sources: EU MMO; FCStone International, Ornua, EEX, GDT

 

Based on EU MMO data[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]In summary, the main European indicators, including the Ornua PPI, would suggest the scope for milk price increase.  It makes the Irish co-ops’ cautious August decisions all the more disappointing, as apart from Aurivo who increased milk prices by a modest 0.5c/l, all those that have announced their August price as we write have opted to hold at July levels.

As farmers’ cash flow are stressed by massively increased by feed and fodder expenditure, it will be important for co-ops to pass back the maximum possible for milk to encourage farmers to keep cows fed and the milk flowing!

 

CL/IFA/18^th September, 2018[/vc_column_text][vc_column_text][/vc_column_text][/vc_column][/vc_row][vc_row][/vc_row]

[vc_row][vc_column][vc_column_text]Weather events continue to moderate US and EU milk output into Summer

Milk supplies for April 18 lifted a little for the EU 28, at +2.1%. In the US, the growth was quite modest for April (+0.7%) and in May (+0.9%).  Together with a 4% increase for April/May 2018 in New Zealand, this has led AHDB to predict a slight recovery from the trend to March.
However, I would venture to guess that dry and hot weather in North Western Europe, and wet weather in other parts of Europe in May and June will probably moderate growth in the EU 28 again for those months.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]

Source: AHDB Dairy[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]Commodity prices strengthened through June – easing somewhat now

EU and international commodity prices have been strengthening since the beginning of the year, in response to strong demand and moderate production growth, especially in the EU 28.

EU average dairy commodity prices as reported to the EU Milk Market Observatory (EU MMO) at 24^th June (most recent available as we write) suggested a gross return before processing costs are deducted of 37.93c/l for a reasonably representative Irish product mix.  This was despite a slight easing that week of butter, SMP and WMP prices. After deduction of a nominal 5c/l processing cost, this would be equivalent to a price level of 32.93c/l + VAT (34.70c/l incl VAT).[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]

Based on EU MMO data[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]The Ornua PPI for June also showed improved butter and SMP returns, rising from 105.4 points for May to 109 points for June.  This is equivalent to a price level – as stated by Ornua – of 31.1c/l + VAT (32.78c/l incl VAT).[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]

Source: Ornua[/vc_column_text][vc_column_text]In recent days, however, some commodity prices have eased a little, influenced by 3 consecutive negative GDT auctions.
Spot prices have also eased, as have futures markets for the main commodities (butter and SMP).

For all that, the combined GDT average price for SMP and butter based on 3^rd July results would yield a gross return of 34.64c/l and a price equivalent at Irish constituents of 29.64 c/l + VAT (31.24c/l incl VAT).  [/vc_column_text][vc_column_text]

Source: GDT[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]Most recent European cash market (spot) quotes for butter and SMP (4^th July 2018), though slightly easier,  would nonetheless yield a gross return of 39.57c/l and a milk price after deduction of 5c/l nominal processing costs of 34.57c/l + VAT (36.47c/l incl VAT).

[/vc_column_text][vc_column_text]

Source: FCStone International[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]Price increases expected, needed and justified for June milk

All these indicators would suggest that a price increase is well and truly justified for June milk – as well as being badly needed by farmers who are now again struggling with fodder shortages, this time due to drought!  What a challenging year 2018 will have proven for dairy farmers!  A market based price increase on June volumes will go a long way to support farmers’ ailing cash flow as grazing grass, never mind fodder stocks, get scarce, and the cost of feed rises dramatically.

 

CL/IFA/12^th July 2018                                      [/vc_column_text][/vc_column][/vc_row]