The dairy market is projected to remain tightly supplied through H1-2019. The impact of tighter availability will have varying impact on each commodity group with firming protein values and still-elevated fat value. With firmer prices for WMP, fats and cheese, the short-term challenge is whether demand weakens in price-sensitive segments of import markets.
The global economy faces plenty of headwinds with the potential economic and dairy trade disruptions of a no-deal Brexit; a slowing Chinese economy; a weaker EU outlook and expectations of a US recession in 2020. There are also further risks from an escalation of US-led trade conflicts with China and Mexico.
Skim Milk Powder
Developing world markets have stocked-up on SMP, which may leave the EU with tight supplies of fresh product, depending on spring milk flows. With large aged stocks, we will continue to see tiered markets.
Whole Milk Powder
Market growth is patchy despite the relatively cheap FOB prices. China & HK has essentially carried the growth in global WMP trade in recent months given the sizeable cost advantage for imported products, but there was much stronger involvement from South East Asia in January (up by 35%). When coupled with the slowing NZ milk output due to dry conditions, this has significantly tightened WMP availability and lifted prices.
Butterfat prices have ongoing downside risk. Prices continued to weaken in Europe with adequate stocks and a cautious demand-side, with prospects for improved availability through the EU flush. There are clear signals of a weaker EU economy affecting product mix decisions later in the year. Oceania prices have lifted –led by small quantities offered on GDT –and a weaker run-down in NZ milk supply, but demand will remain patchy.
Global cheese trade continued to expand over prior year comparatives. The 7% increase in January was the strongest YOY expansion in 20 months. Oceania spot prices for cheddar have remained firm, despite weaker trade from NZ.
Global trade fell 8.9% YOY to 134,000t in January – the largest single month fall since March 2015 – as higher US tariffs and swine fever combined to weaken Chinese demand for the second consecutive month.
By Dustin Boughton, Procurement, Maxum Foods – Your partner in dairy.