Dairy Commodities Market Intelligence

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The decreasing demand for dairy trade in China

“When will China bounce back?” – A common question in the dairy world and often the first question asked by many, this indicates the importance of China as the world’s largest importer of dairy products. It’s a good question as the downturn in demand in China has seemingly been driven by the rolling COVID lockdowns, once the lockdowns ease the demand is expected to pick up.

At the beginning of 2022, the online dairy trade in China decreased by 23.7%, though COVID restric- tions undoubtedly led to this decrease, it perhaps may not be the only factor contributing to the fall of imports in China. The country’s drive for self-sufficiency has seen an increase of imported breeding cattle to the tune of 34% (YoY). This push to achieve self-sufficiency on milk production may have a long-term impact on import demand well past the easing of COVID lockdowns. However, China’s cost of dairy production remains high to date, particularly due to the feed which is often imported and also due to low milk yields. For this reason, import demand is expected to remain robust post lockdowns. Since several years China has not been at the forefront leading the global demand for dairy products, as such, the industry must remain observant on these developing factors.

SKIMMED MILK POWDER

USA

  • Low/medium heat nonfat dry milk (NDM) price range shifted downward while the top was unchanged.
  • Fewer spot trades of low/medium heat were contracted this week, as domestic demand is
    softening. Export demand for low/medium heat NDM is steady.
  • Loads of low/medium heat NDM are available on the spot market. Plenty of milk is available for
    drying, allowing strong production of low/medium heat NDM.
  • Production is outpacing demand, causing inventories of low/medium heat NDM to grow.
  • Might contribute to bearish markets in the coming weeks. High heat NDM production remains limited.
  • High heat NDM demand is strong, and spot availability remains tight. High heat NDM prices
    were steady at the bottom, while the top inched higher.

OCEANIA

  • Prices for skim milk powder (SMP) moved higher on the upper and lower ends of the pricing range.
  • New Zealand SMP sold at a premium when compared to EU’s SMP.
  • Oceania production of SMP is moderate to light. Supplies are adequate for current interest while
    demand is moderate. With the expected increase in global supplies, there is some buyer
    hesitancy due to a possibility of lower prices in the near term.
  • Buyer contracts for Q1 2023 are generally covered. The SMP market has an unfavorable
    undertone in the short term per market representatives.

SOUTH AMERICA

  • Prices of skim milk powder (SMP) have remained unchanged since the past fortnight.
  • Processing has increased with recent seasonal milk output.
  • Concerns are raised about drought-plagued dairy farms and the potential of lower milk volumes
    moving into the summer season.
  • Brazilian imports are keeping markets steady as opposed to bullish or bearish.

EUROPE

  • European skim milk powder (SMP) prices continued to move lower.
  • Industry suggests that the price bottom has not yet been reached.
  • Buyers are hard to find at current price points, while manufacturers are presenting Q1 offers at
    lower prices and getting little interest.
  • Export demand is light. In some cases, end users are pushing back on contract delivery dates.
  • Inventories are sufficient to meet current needs and are growing.
  • Milk intakes are above expectations and therefore SMP production is also above projections.

WHOLE MILK POWDER

USA

  • Dry whole milk prices moved lower on the bottom of the range, while staying steady at the top.
  • There has been a growth in availability in recent weeks but trading activity and demand
    are expected to remain slow through the end of the year.
  • Contracts have been worked out or are being worked through for Q1 next year.
  • Milk production growth has pushed more milk into processing, while whole milk drying
    activity remains somewhat limited and processors’ foci have shifted to Q1 needs.
  • Dry whole milk market tones are slightly bearish, as milk availability has seasonally grown.

OCEANIA

  • This week, Oceania whole milk powder (WMP) prices adjusted steady to higher.
  • While less WMP in volume was traded compared to the previous GDT event, price
    support was garnered with strong purchasing from the Southeast Asians.
  • Production is active in New Zealand but significantly reduced in Australia.
  • The current inventory level is sufficient in New Zealand as industry sources report a higher
    volume of WMP offers.
  • Export sales to China are below last year at this time.
  • The market undertone is fairly steady.

SOUTH AMERICA

  • South American whole milk powder prices remained steady on a recent growth in milk availability and processing during an upward push of export shipments from the Southern Cone into Brazil.
  • Despite a decline in reported exports into Chinese and Algerian markets this fall, Brazil importers have taken a strong step in offsetting the downticks from the other larger import markets.
  • Near term milk outlooks are expected to become a potential issue as drought conditions in Uruguay and Argentina are being reported regularly.
  • Processing of other non-powder commodities are also likely to grow during Q1 to meet contract demands.

EUROPE

  • European whole milk powder (WMP) prices are steady to lower.
  • Spot market activity is quiet outside of existing contracts.
  • Inventories are sufficient and in balance with current needs. Most WMP production is on
    a made to order basis.
  • With European WMP prices well above prices from other worldwide suppliers, export demand is light.

WHOLE MILK POWDER

OCEANIA

  • The Oceania butter price weakened across the price range due to the level of reluctant buyer interest.
  • Oceania butter inventories are primarily determined by seasonal milk production volumes.
  • Churning is marginally reduced in Australia as holiday cream demand restricts available cream from being churned, leading to limited stocks.
  • New Zealand butter supplies are moderate. Price fluctuations are expected in the near future as markets test demand and supply.

EUROPE

  • European butter prices are trending lower.
  • Retail packaged butter demand is strong ahead of the winter holidays,
    retailers are buying only enough to get through the end of the year.
  • There is enough butter in inventory to cover near term needs and butter
    brokers want to keep only essential butter supplies on the end of the year
    books.
  • Block butter demand is weakening and purchasers are in no rush to make
    buys before the end of the year. Cream prices are trending lower.
  • European butteroil prices are mixed with an expanding price range. While
    nominal prices within Europe are generally trending lower, the strengthening of the Euro has moved some prices higher at the top of the price range.