The fundamentals underpinning the global market outlook remain relatively positive with weak growth in milk supply, expanding demand in major domestic markets. However, as supply grows again, global trade is slowing. The outlook for commodity product values is mixed as the realignment of fat and protein values continues.
Production conditions in New Zealand appear favourable, which is likely to see milk output close to the prior year through the peak of the season. However, WMP markets remain finely balanced, highly dependent on sustained Chinese demand, in turn helped by changing milk use and rising local farmgate milk prices.
Skim Milk Powder
SMP prices should steadily trend firmer, despite adequate availability and an inevitable slowing in the expansion of trade. SMP demand in Asian markets was flat in the June quarter and will continue at a slower pace in H2-2019 as markets absorb stocks. Sluggish growth in EU milk output and a gradual reduction in supply chain stocks should support SMP prices, but adequate fresh product supplies will limit the gains throughQ1-2020.
Whole Milk Powder
Prices are finely balanced, but the expected normal NZ season should ensure adequate availability and might see prices ease as Chinese buyers manage their input costs through GDT. Global WMP trade grew just 0.6% YOY in June, the weakest expansion in 9 months, and which slowed growth to 2.6% for the June quarter.
Butterfat prices have steadied as demand improves. The EU balance sheet will improve but in the short-term demand and supply growth will be closely aligned. EU commodity cheese values will be driven by returns from the SMP/butter stream, which is projected in our analysis to steadily improve.
June trade was down 3.5% YOY, the first year-on-year decline in trade since October 2018, which saw growth at an average rate of 4.5% through to May. This pulled the June quarter performance back to as gain of just 1.2%. Australian imports continued to fall compared to the prior year, down 10% in the June quarter, but shares have shifted with the EU growing trade by 12% and the US losing a quarter of its business.
The decline in global trade in whey products narrowed in June falling 2.8% year-on-year, the smallest monthly fall of 2019, since the rout commenced with the shrinkage of trade with China, due to the culling of their pig herd to address swine fever.
By Dustin Boughton, Procurement, Maxum Foods – Your partner in dairy