Market outlook

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Market Outlook | 16 April 2021

Global markets continue to buy dairy commodities. For most buyers, the challenge is not buying at the right price, but making sure that goods arrive at the destination port in a timely manner. Port congestion issues, as well as the recent Suez Canal blockage, have put a lot of pressure on the global supply chain.

Skimmed Milk Powder

Lower milk intake in, predominantly, France (minus 3.1% in Jan + Feb YoY) and Germany (minus 1.9% in Jan + Feb YoY) has resulted in lower EU SMP production. We are still waiting to receive recent public data, but January showed a large decrease in French SMP production (-11.9%) and, based on our intel, this trend has continued in February and March. We foresee that total EU SMP production will be lower in H1 2021 vs H1 2020.

Because production is lower, EU producers are reported to be very comfortable and EU SMP stocks are perceived to be low. In April, western EU countries will reach their peak milk production season, but at Bdairy we do not observe any pressure for sales and prices remain stable at around EUR 2500–EUR 2550/mt FCA.

At the beginning of April, the global demand for SMP has slowed down. It is reported that Chinese buyers are less active and the recent short-term market trend does not force buyers to make quick decisions. We still perceive that buyers are only tending to cover short-term needs, as compared to recent years. Most demand is for Q2 and Q3; most buyers are not yet covering Q4.

US milk production remained strong during Q1 (+2.2% milk growth YoY for Jan and Feb). This has resulted in a surplus production of USA butter (+3.3% YoY for Jan and Feb) and US NFDM/SMP (+8.5% YoY for Jan and Feb). However, as logistic constraints remain (such as major berth congestion in the Los Angeles port), buyers are only willing to cover smaller volumes out of the US. Furthermore, US producers only have a limited amount of SMP medium heat available vs low heat, which is what they traditionally produce.

NZ is heading out of the season with relatively low stocks, which is also reflected in the premium NZ SMP price at the latest GDT (approx. USD 3400/mt FOB).

As EU and NZ SMP stocks are low, we foresee the market remaining stable with a possibility for further increases. In particular, a new Algerian tender (ONIL) might cause prices to rise further.

Bdairy outlook: stable

Butter

EU butter prices rallied in the first half of March, after which they have been slightly under pressure. The German and Dutch quotations peaked at EUR 4200/mt FCA and EUR 4150/mt FCA, respectively, and since then have gradually come back to EUR 4050/mt FCA.

We see a similar trend in the physical market, with short bullish and bearish swings from week to week. Similar to SMP, EU buyers are not covering beyond Q3 for “fear” of lower prices and lower end customer demand.

EU butter stocks are (still) perceived to be low, but this might increase during the peak production season of April and May. During Q1, liquid cream prices traded at a premium over butter prices. This trend is remarkable, as traditionally there is an oversupply of liquid cream in the first quarter of the year. At Bdairy, we believe that Brexit was one of the reasons that less liquid cream was available on the continent. Fewer volumes of UK cream reached the continent due to problems with documentation.

Cream prices came down at the end of March, which will trigger more butter production. Currently, cream is trading between EUR 4450/mt and EUR 4550/mt FCA (based on 100% fat), which makes it tempting for EU producers to churn cream into butter at approx. EUR 3800/mt to EUR 3950/mt FCA for prompt deliveries (prices differ per country).

EU butter remains far more competitive when compared to NZ butter (recent GDT showed a price of USD 5700/mt FOB for butter), but more aggressive offers are reported out of Australia and the USA compared to EU butter prices. January statistics show a decline in butter export volumes (14.728mt exported in January) and we expect that EU butter export figures will remain lower in 2021 vs 2020.

Bdairy outlook: stable to bearish

BMP

The BMP market has seen a steep increase during April, the main reason being an increase in the consumption of liquid buttermilk. Therefore, less dried buttermilk became available.
In addition, demand remains strong from both the MENA and SEA regions. Meanwhile, producers worldwide claim to have limited availability. EU BMP has been trading at EUR 2400–2550/mt EXW and US BMP at between $1.21 to 1.24/lb EXW.

Outlook: slightly bullish

Lactose

During April there has been more pressure on the lactose market and we believe that one of the main reasons for this is that demand from the infant industry is slow. In addition, feed demand from China decreased slightly.
We’re seeing lactose prices trading at between EUR 800 and EUR 1050/mt EXW EU.

Outlook: stable

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