Words by: Amy Castleton
After a shock lift in dairy commodity prices early in July the market has now moderated to some degree and feels reasonably stable, at least in Oceania. At the July 7 Global Dairy Trade (GDT) event prices jumped 8.3%, driven by a 14% soar in the price of whole milk powder (WMP). At the July 21 event prices eased 0.7% overall. WMP was up slightly more (+0.6%) but most other commodities lost value. Looking forward, most in the market expect prices to flatten or decline through the remainder of the calendar year.
Demand for milk powders is variable depending on the buying region. Those that are coming out of lockdown have reasonable demand, while demand is less steady from those that are either still in lockdown or going back into one. Demand from China has been good. Data out at the end of July did show that China’s WMP imports were down 5.5% year on year in June. However, there have been some delays in shipments, which may be the cause of the decline as buying has been good according to market participants. New Zealand’s June WMP exports jumped 21%, including a 3.8% increase in volume sent to China, so we would expect to see an increase in China’s import volumes in coming months.
Skim milk powder (SMP) demand is more variable than that for WMP. Demand from South East Asia in particular has started to drop as several countries have gone back into lockdown and economies struggle. Buyers are starting to look to purchase the cheapest product available, which is more likely to be SMP from the US or the EU because Oceania products usually attract a premium.
The fat side of the market continues to be more heavily affected as food service continues to either operate at a reduced capacity or not at all. Butter is certainly heavily affected, though in some instances processors have been able to move to more retail sized product than bulk product. Cream, cream cheese and mozzarella are also impacted as these products also tend to be directed more towards the food service industry. Prices for both butter and anhydrous milkfat are now at their lowest levels since mid-2016.
The supply side of the market is reasonably stable. The Northern Hemisphere is now past its peak and the Southern Hemisphere is just starting to come out of the trough of its season. US production was up just 0.5% year on year in June. European production was flat in May, up just 0.03% year on year. Australian production was up 6% year on year in May, with production now having grown every month since December. However, it will take much longer for Australian production to recover back to where they were a few seasons ago as the dairy industry has fallen quite far in that time.
In NZ, June production was up just 2% year on year. While a reasonable result, this figure is a much smaller growth rate for June than we have seen for the past several seasons. There have been a reasonable number of winter milk contracts picked up but it seems that June still saw some hangover from the drought.
