The fundamentals underpinning the global market outlook are positive with slow growth in milk supply. However, the outlook for product values is mixed as the realignment of fat and protein values continues, given the differences in regional balance sheets, and demand responses to changing prices.
The global milk balance will remain tight as milk production resumes slow expansion in H2-2019, while export demand slows from the frenetic pace in H1-2019. This remains subject to the strong influence of weather events on EU and NZ production.
Skim Milk Powder
SMP prices firmed through early June as rampant export demand cut into stocks, but adequate availability and a lull in activity has since steadied prices. Significant appetite for SMP in Asian markets has been incentivised at attractive prices and will likely persist – albeit at a slower rate – in coming months.
Production conditions in NZ appear favourable, which is likely to see milk output close to prior year through the peak season. However, WMP markets remain highly dependent on sustained Chinese demand, in turn helped by ongoing high Chinese farmgate milk prices.
Butterfat prices have weakened due to adequate supplies in the EU and demand-side weakness in the EU domestic market as well as key developing world markets. The push back in prices was apparent in several GDT events, halted by some short-term cover in Sth East Asia, but the Oceania market remains fragile as EU prices look for the bottom.
Weaker butterfat prices have dragged cheese prices down in Oceania and NZ, while the US market has firmed with tight milk supplies to cheddar plants. The divergent pricing has left EU-origin product easily the cheapest in the market which may pressure values incontestable markets. There are a number of important details in the cheese trade. Demand from developing Asian markets has sustained moderate growth in 2019, while Central and South American markets also continue steady expansion. Korea has also expanded demand12% in 2019, while demand from Japan slowed in May after 4 months of YOY gains.
Commodity whey markets have weakened led by the overweight US balance sheet with the shrinkage in export markets. As has been the story for several months, the combined effects of the higher tariffs on US product and the effects of ASF on the Chinese pig market weakened Chinese demand for all whey products by 39% in the May quarter.