Market outlook

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Market Outlook | 4 June 2021

Historically, dairy commodity prices are on the high side, which will result in higher milk prices for the farmer. Higher returns will boost production and eventually create more supply. At Bdairy, we expect to see additional milk supply in 2022, but supply in the second half of 2021 could remain very tight in Europe, as production will not be able to grow in the short term.

Skimmed Milk Powder

Global SMP prices remain stable. Production of SMP remains lower in the EU (minus 5.47% in Q1), which is (partly) compensated for by the higher production figures in the US (+2.61% in Q1).
For this reason, EU SMP prices are trading at approx. USD 150/mt higher than US SMP prices. The current price for EU SMP is EUR 2620/mt FCA and USA NFDM Low heat is trading at 1.30 per pound (=USD 2866/mt FCA).

NZ is reporting surprisingly high milk production figures. April was up by 11.6%, following an already very strong Feb and March. Because of the strong end to the NZ milk season, total milk collection was up by 2.4%, making it a record production year.

The increased milk supply had no effect on prices, as a recent GDT tender (1 June) showed a stable trend, with NZ SMP trading at USD 3575/mt FOB–USD 3445/mt FOB, depending on the period.

At Bdairy, we see that more SMP offers are becoming available and that the market has been relatively slow in the last few weeks. However, stocks remain low in both the EU and the USA and with the peak already behind us in both Europe and the US, there is unlikely to be a significant drop in pricing. Furthermore, end users still report that they need to cover (part of) their Q3 and Q4 needs, but are postponing their decisions due to higher prices.

On SMP, there are interesting options to look at long-term deals (e.g. 2022), as milk prices are interesting for farmers, as well as for end users who want to protect themselves against higher dairy commodity prices.

Bdairy outlook: stable

Butter

Much like SMP prices, butter prices remain stable. Even though EU butter buyers are not actively sourcing product, the raw material for butter production (=cream) is trading at higher levels. Levels of EUR 5000/mt (based on 100% fat equivalent) have already been reached. This means that butter producers can choose to sell their liquid cream with equally good returns and therefore limit their butter production. You can also see this trend reflected back in the data, as EU butter production was minus 1.7% during Q1.

However, EU butter exports are also down (minus 29.3% during Q1). This is because EU butter is trading at a premium compared to US, South American and (!) Indian butter. Also, NZ butter prices are decreasing sharply (minus 5.4% latest GDT), which could be an effect of the surplus production, as explained above.
On the demand side, we believe that EU buyers are not well covered and that purchases still have to be made for H2 2021. Furthermore, we see interest from the EU industry to cover part of their needs for 2022 at current market levels.

As milk production is seasonally high in May, June and July, producers will have to decide whether they are going to store their butter volumes for delivery in the low milk intake season (October, November) or whether to bring these volumes to the market right now. Based on the idea that milk production will not grow significantly in 2021, it is most likely that they will decide to store their volumes.

Bdairy outlook: stable for now.

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