Dairy Commodities - Q1 2020

The current global situation due to the COVID-19 pandemic has had a significant impact on almost every business around the world and the dairy market is no exception. Milk powder prices have been falling every week since the beginning of the year and this trend has continued throughout the first quarter of 2020 with SMP and WMP both following a downward trend. While an approximate 10% drop was seen in the WMP prices from Oceania as of 17th March against December 2019, SMP prices recorded a drop of app. 7.7% from Oceania (as of 17th March against the December 2019 prices) and we saw the average price of SMP from Oceania going below the average SMP prices from Europe.

Low demand from China and the uncertainty prevailing due to Covid-19, were the key factors that led to the continuous drop in dairy commodity prices. However, it is also seen as a temporary situation and the prices are expected to stabilize and even see an upward trend as China resumes imports as they may import large volumes of product to replenish the stocks in their country.

SMP: SMP production for the year 2019 (Jan – Dec) was approximately 1,508K MT for Europe (EU 28), which was app. 12K MT lower as compared to Jan-Dec 2018. France contributed to maximum production, leading with app. 28% followed by Germany with app. 26% of the total production. Belgium and Poland stood 3rd and 4th with 11% and 10% contributions respectively. While comparing prices in Mid- March against the SMP prices in December. 2019 prices from Germany dropped by 5.1%, while Oceania prices dropped by 7.7% and the USA saw the maximum drop in prices registering an app. 9.1% drop in approximately 3 months.

SMP from Germany saw an average price of 2,475 Euro/ MT FOB in March, as compared to an average price of 2,625 Euro/MT FOB in January 2020. SMP from Oceania also followed the same downward trend moving to 2,480 Euro/MT FOB in March 2020, as compared to 2,725 Euro/MT FOB in January 2020.

SMP prices from the USA have also followed the trend in the EU and Oceania. US prices moved from 2,490 Euro/MT FOB in December 2019 to 2,236 Euro/ MT FOB in March 2020.

WMP: Production of WMP showed an increase of approximately 17K MT in 2019 over 2018 production quantities, closing 2019 production at 808K MT. Of the total quantities produced, Germany contributed approximately 36% followed by Netherlands with 22% of total WMP produced out of Europe. France and Denmark recorded 3rd and 4th positions respectively with approximately 14% and 9% contributions respectively.
WMP from the EU dropped by approximately 3.8% in Q1, 2020 moving from app. 3,075 Euro/ MT FOB in January 2020 to 2,970 Euro/ MT FOB in March this year.

WMP prices from Oceania showed a double digit drop in the last 3 months falling almost 10% by mid-March 2020 as compared to December 2019. WMP prices from Oceania have dropped to 2,625 Euro/ MT FOB average by mid-March, as compared to approximately 2,851 Euro/ MT FOB in Janu- ary, 2020.

WMP from the USA was near stable, falling marginally from 3,580 Euro/MT FOB in January 2020 to 3,560 Euro/MT FOB in March 2020.

Although many dairy manufacturers believe this pandemic to be a tempo- rary situation, there is a lot of uncertainty around the prices for the coming months. There is a belief that prices will start to follow an upward trend once the situation in China improves and the country returns to the buying platform again.

There is also a global shortage on containers with a large number of containers stuck in China. This short supply of containers can cause delays in shipments due to non-availability of containers and vessels.

Some countries have also implemented additional tests on both outgoing and incoming cargo and crew which can also cause extended logistics times due to delays at transit ports and in the clearance of cargo. Hence it is advisable to increase buffer stocks and add some additional lead-time while planning shipments.