Dairy Commodities Market News - Q3 2022

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European milk production continues a lower trend reflecting declining seasonal patterns. Inventories for many dairy products are relatively in good balance, creating a lot of anxiety within the industry. The market anticipates demand to be weak through the remainder of the year. However, there is also the expectation that milk intakes will also remain weak, leaving the question of which factor will create the most impact on market direction. The value of July and August dairy product sales increased compared to previous months due to higher prices. While the value of dairy product sales increased, July and August dairy product volumes decreased, as consumers bought fewer product units.

Eastern Europe: Milk production is seasonally trending lower in Eastern Europe. Some of the countries are ahead of last year’s YTD milk production levels with the exception of war-torn Ukraine. Preliminary estimates from within the country suggest that Ukrainian dairy has diminished by about 15%.

Australia: Australian milk production forecast indicates flat to moderate growth for the new production season, as milk collections posted a decrease to begin the new season, 2.7% lower compared to July a year ago. Dairy production in Australia has decreased every month in the 2021-2022 milk production period. Sources suggest that with continued low production and supply shortfalls expected in Australia, the competition between processors has picked up.

New Zealand: Rain-soaked pastures have accompanied New Zealand’s new milk production season, supporting declines in the available dairy commodities. In the North Island, very wet conditions occurred throughout July. Milk collections in the area are 3.5% below last season. In the South Island, rainfall has been heavy. Milk collections for August were 9.7% higher than the previous year. By all accounts, in August, New Zealand’s milk production dropped a massive 5.5%, on a volume basis, compared to the same period the previous year. As such, the New Zealand 2022-2023 milk production forecast now has been downsized from 0.4% to -2.2% compared to the last season.

South America: Milk production in the region is facing continued downward pressure. Operational costs remain an issue. Feed and grains have become more available, counteracting some of the recent and notable financial hurdles for producers. Argentina saw milk output numbers moving higher, year-over-year, Uruguay and Brazil saw outputs falling since the past quarter.

SKIMMED MILK POWDER

USA: Prices for low/medium heat have moved higher across both ends of the range. Domestic demand for low/medium heat is holding steady while international demand has shown trending higher. Loads of low/ medium heat non-fat dry milk (NDM) are available for spot purchasing. Some drying operations in the region are running below capacity due to labor shortages and delayed deliveries of production supplies. Production of low/medium heat NDM is steady. Lighter regional milk production has enabled some plant managers to increase their production of high-heat NDM. Despite this increase, strengthening demand for high heat is keeping spot inventories and prices a little tight.

OCEANIA: Oceania skim milk powder pricing is steady on both ends of the range. Trades on the GDT auction site were 29% fewer than the previous auction. FMO July, export markets saw a 29% increase year-over-year, as Asia and China increased their imports 32% and 61% year-over-year, respectively. Open interest in the September contract is steady, as overall interest revives. Skim milk powder (SMP) output in the region is still constrained by milk supplies. Production in New Zealand is relatively normal for this time of year. Australia is striving to maintain SMP production in the face of shorter milk supplies as well.

South America: The South American dairy powder market has continued to find some balance, as this week’s skim milk powder (SMP) prices were steady again. Despite global value declines on dairy powders, SMP exports have moved higher in Uruguay and are continuing to move up from the previous year’s levels in Argentina. Northern African and Middle Eastern importers are offsetting some of the losses of SMP loads that would likely have gone into Eastern Europe/Russia. Processing remains a concern, as milk production continues to lag, and production and labor costs/obstacles remain at the top of priority lists for market actors.

Europe: European skim milk powder (SMP) prices moved slightly lower at both ends of the price range. Market participants after returning from their summer holidays, lifted demand in near-term demand for European SMP. Supplies are tight, manufacturers are generally able to meet the current requests. Given the significant amount of uncertainty that fills the SMP market, deals for longer-term business are challenging. Current production is steady to lower, and with weak milk intakes and high energy costs, manufacturers expect tight supplies and higher prices. But buyers are hesitant to commit to longer-term deals without clear signals of stronger SMP demand.

WHOLE MILK POWDER

USA: Whole milk prices remained unchanged after last week’s increase at the bottom of the range. Trading was quiet on all dairy commodity powders. Milk availability, generally, is in the late summer doldrums and the processing focus is based primarily on contractual needs. Commodity powders have (at least) temporarily, started to steady, dry whole milk market tones are firm for the near-term.

SOUTH AMERICA: Whole milk powder (WMP) prices remain steady as export demand and limited availability of condensed whole milk (due to generally lower overall milk output) have kept South American powder values shielded from some of the price declines in other global trading arenas. Still, WMP availability is not noted as tight. Generally, availability and market tones, alike, are viewed as balanced for the near-term.

OCEANIA: Prices for whole milk powder in Oceania are steady to lower. The current market undertone points to WMP prices recovering from the impact of the last GDT event. The market is expecting prices to increase at upcoming events, as contracts rise beyond the previous GDT Auction results for all contracts. Open interest is high. In July, WMP exports increased, primarily to North Africa and Asia, with rises of 123% and 3%, respectively, year-over-year. China has recaptured a few volumes as well. Production is steady, along the lines of seasonal milk output levels.

EUROPE: The price range for European whole milk powder (WMP) has narrowed, with the bottom of the range moving higher and the top of the range moving lower. WMP demand is largely quiet, but with some upticks in inquiries as market participants return from summer holidays. Production is steady and sufficient to fill current contracts. WMP inventories are fitting closely and are adequate to fill current needs. With prevalent uncertainty, stocks are currently in balance with market needs.

BUTTER

EUROPE: European butter moved lower within the two-week period and seemed to dip before recovery. Demand for both packaged and bulk butter has picked up as more Europeans return from summer holidays. In addition, the fall/winter baking season is nearing and buyers are eager to assure coverage. Inquiries are steady, but there is a disconnect between the price expectations of the buyers and sellers for longer-term deals. Inventories are sufficient to meet the demand. With firm cream prices, tight milk supplies and higher costs for energy and labor, butter makers are uncertain how the supply side of the butter equation will unfold.

OCEANIA: Butter from New Zealand carried a discount based on U.S. and European butter prices. There has been steady trading of butter throughout the month primarily in Asia. Interest is expected to be good for contract periods September through October, with upward movement in prices. Butter exports reported a 31% increase. Butter plants are running moderate to light production schedules. The market undertone for Oceania butter is steady to low.