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Market Outlook | 5 July 2024
General introduction
During June, the market experienced significant volatility within a range-bound level, driven by uncertain supply and demand dynamics. This led to a mix of both quiet and very active trading days.
In the EU, the milk supply situation remains largely stable, with data up to April indicating a slight YoY increase of 1.1%. However, some regions, notably France, are experiencing a notable uptick, with levels up by 3.4% YoY. Ireland continues to lag, but has a positive outlook for the coming months.
In Oceania, product availability is reported to be thin, particularly in New Zealand. This has led to many buyers in Southeast Asia finding a shortage of product from regular resellers.
In the USA, milk collections are down 0.2% YoY, indicating a largely stable trend. It’s worth noting that last month collections were up by 0.1% YoY.
The latest GDT saw a 6.9% drop across all products, led by the fat component, with butter and AMF dropping by 10.2% and 10.7%, respectively. BMP also saw a correction, down by 5.1%. SMP dropped by 6.1% and WMP decreased by 4.3%, with lactose being the only firm component, up by 0.6%. Cheddar continues to face some weakness, down by 6.9%, prompting Bdairy to question the forward valorisation curve.
Global demand remained largely unchanged, though there was greater activity compared to May, with several large buyers in Africa and Asia re-entering the market.
The geopolitical landscape remains tense, with recent elections in some countries showing a rise in the populist vote.
Transit times to Asian destinations from Europe and the USA remain stable. However, buyers should be cautious about relying on just-in-time inventory strategies, as this approach has proven risky in recent months due to product shortages and transit time issues affecting factories globally.
China Update
During June, China witnessed an increase in demand across the lactose, whey and WPC streams. However, demand for SMP and WMP continues to be subdued, due to improved local production for WMP, which is available at reduced prices versus imported product. SMP demand continues to lag YoY, down 35% versus 2023, due to a poor local economy, which has led to a lack of demand.
China continues to experience increased milk collections, and the forward trend is for continued future growth and less reliance on imports, especially of WMP.
The demand for infant grade products continues to slow, on account of a reduced birth rate. This is likely to have been caused by the economy maturing, which is giving people less incentive to have large families.
China will continue have reduced imports, during the year, with this market absence being reflected in current prices.
Skimmed Milk Powder
SMP experienced a significant market drop during the month, with FCA prices in Europe now ranging between 2,320 and 2,450 EUR/MT for July and August, depending on the brand and shipment window. We witnessed increased availability during the month, as manufacturers hesitated to hold large positions due to a nervous outlook on future demand. Traders were also more willing to take positions in a market expecting lower demand than supply.
Global buying activity was noted in Southeast Asia and North Africa, but the Middle East and China were largely absent. South America also remained quiet, despite some end user buying in certain regions.
During the latest ONIL (Algerian government tender), large volumes were booked from Belarus at below global market levels, prompting EU producers to reduce their prices to remain competitive globally.
SMC prices in Europe fell below 2,000 EUR/MT, partly due to poor demand for fresh produce driven by a lacklustre summer in Europe. Despite these reduced prices for SMC, SMP production in Europe is down 2.6% YoY.
In early June, good availability of US product, driven by relatively low demand and good butter valorisation, made USA NFDM/SMP more competitive than EU product. However, this quickly changed as the EU surplus forced manufacturers to lower prices.
Oceanian SMP offers remain largely absent, as this is the low point in their season. We do not expect Oceanian product to be competitive until Q4.
Overall, we remain slightly neutral. At current market prices, end users can absorb large volumes and generate positive returns on their final product. SMC prices are likely to have hit a floor, with an improved weather outlook for Europe expected in the coming months.
Bdairy Market Outlook: Neutral
Butter
The fat market remained elevated during the month, with prices ranging between 6,500 and 6,900 EUR/MT FCA EU in NL/BE/DE, depending on the brand and delivery period. Production in Ireland continues to be problematic, down 9.5% YoY, although there has been a slight recovery due to improved milk collections.
Cream prices also remained high, reaching up to 8,150 EUR/MT FCA DE, correlating with the firm butter market. An expected uptick in liquid demand is likely to keep the cream market strong.
End users continued to purchase for Q3 and prompt demand, often postponing coverage until the last possible moment. Despite recent buying activity, many buyers remain largely uncovered for the end of Q3 and the beginning of Q4, as they are cautious about filling their forward inventories at the current high prices.
The current high prices are leading to an improved production picture, with butter valorisation improving compared to previous weeks. Demand for cheese remains stable to slightly down, so more milk is likely to be directed into the fat stream, which should help cap prices. The improved outlook for Ireland also benefits the market as, overall, there should be more product available in the EU. Therefore, we remain cautious in our outlook.
Bdairy Market Outlook: Neutral
BMP
BMP prices remain elevated compared to SMP prices due to significant global supply shortages. Despite this, the latest GDT saw BMP prices drop by 5.1%, aligning with the decrease in SMP prices, as the price spread between them cannot widen excessively.
In the EU there is a notable shortage of premium BMP brands, primarily because manufacturers have overcommitted due to worse-than-expected butter production. The reduced butter output in the EU has led to a shortage of raw material for BMP production, resulting in limited stock availability.
BMP prices have reached levels of between 2,550 and 2,600 EUR/MT FCA EU for September collection, maintaining an approximate 150 EUR/MT spread over SMP. Historically, this spread does not stay elevated for long. However, this year presents a unique supply and demand situation, suggesting that BMP prices will likely remain higher than SMP for the rest of 2024.
There is still some availability of lesser-known brands, and we advise all our customers to seek samples of these brands for approval, as the market will continue to face real supply shortages throughout 2024.
In the USA, additional BMP supply has not yet materialised, but we expect this situation to change with strong butter valorisation.
Buyers should remain proactive in securing their BMP loads for 2024 to avoid supply issues or delays.
Bdairy Market Outlook: Bullish
Full Cream Milk Powder
WMP experienced a neutral sentiment during the month, driven by favourable valorisation in Europe and relatively weak demand. In the EU, with WMP prices around 3,750 to 3,800 EUR/MT EX EU, manufacturers are positive about FCMP production, resulting in more product coming to market.
To a certain degree, demand has subsided within the EU, with major chocolate producers reporting to Bdairy that sales are down considerably YoY. The export market, however, continues to provide some demand outlets, with ONIL (the Algerian government) recently purchasing significant volumes during their latest tender. However, this demand alone is not enough to push up market prices.
We continue to hear reports of heavily discounted Chinese FCMP being available, with prices as low as 2,700 USD/MT FOB China. This represents a good opportunity for buyers who can absorb such product. Oceania products are also still available, with New Zealand producers reporting healthy stocks, which is capping market prices somewhat.
We expect FCMP to remain slightly neutral due to the improving supply picture in Europe and strong export demand from Africa and Southeast Asia, with the market overall feeling balanced.
Bdairy Market Outlook: Neutral
SWP
SWP remained firm during the month, driven both by strong demand in China and Southeast Asia, where buyers continue to cover for Q3 and Q4, and a lack of SWP supply, as it competes with the WPC stream for whey concentrate. The increase in WPC80/WPI prices to 9,500 EUR/MT FCA EU and 14,700 EUR/MT FCA EU, respectively, has led to an increase in whey concentrate prices to around 350–400 EUR/MT FCA EU.
The demand for high-protein products continues to be strong, with sports nutrition seeing a surge in demand. Consequently, less concentrate is available for the SWP stream, resulting in reduced SWP production, especially in Eastern Europe. Prices in Eastern Europe are as high as 1,000 to 1,080 EUR/MT EXW in Poland, and 960 to 980 EUR/MT EXW in Ireland.
In the USA, availability remains low, with few suppliers holding stocks due to the low valorisation of cheese versus butter/NFDM. Prices in the USA hovered between 960 and 1,020 EUR/MT EXW for Q3 collection, making USA products CIF SEA or China now pricier than EU products.
The whey market is also influenced by the slight downturn in cheese prices, with cheese producers believed to be building stock while demand reduces slightly. This shift will push more milk into the fat/SMP stream, reducing the availability of whey concentrate in an already bullish market.
We remain bullish on the SWP complex, with both tight supply and strong demand indicating that prices should remain firm throughout the coming month.
Bdairy Market Outlook: Bullish
Lactose
The lactose market saw a levelling off in prices, despite relatively strong demand across export destinations, particularly in China and India. The USA also continues to lack product, making the EU market the most competitive for exports.
In the EU, prices for 100 mesh lactose range from 780 to 890 EUR/MT FCA, with discounts of 100 EUR/MT available for unmeshed lactose. In the USA, many suppliers are oversold for Q3, with few willing to offer for Q4.
In India, buyers continue to show stable demand for standardisation and nutrition, as increasing SMP production drives demand for lactose. In China, many pharmaceutical buyers remain active, and infant nutrition buyers are also showing renewed interest.
However, the strong performance of the WPC/WPI stream means more lactose/whey permeate will be available as by-products of WPC/WPI production. With the whey permeate market currently very weak, we expect producers to increase lactose production, especially given the current favourable returns. Therefore, our outlook is more neutral to slightly bullish, considering good EU supply, poor USA supply and strong demand.
Bdairy Market Outlook: Slightly Bullish