The COVID-19 pandemic has severely affected the Global Economy on a macro and micro economic level. Various experts keep offering different viewpoints about the possible end of the crisis and the revival of the economy. While everyone hopes for the earliest recovery, we cannot oversee the effects this pandemic has brought to the world in Q2 of 2020.
Like every other commodity, milk powder prices experienced a sharp decline. Multiple reasons can be cited for the phenomena; a change in the supply-demand ratio where supply suddenly surpassed demand due to the global crisis, supply issues leading to products being unable to reach destinations, delays, liquidity crunch etc.
Milk powder prices saw a steep fall from Feb – April, where they stabilized a little and then started moving upwards as large economies like China reopened again for imports. Since mid-May, dairy commodities prices have been seeing upward movement and the same is expected to continue for the coming months as well as the increased stock inventories dry up and the supply–demand ratio shifts back again.
With this pandemic keeping the situation unpredictable and talks of a possible second wave, it is difficult to say when and if the price tide may change again in near future.
SMP: For the year 2019 (Jan – Dec), France contributed to maximum production, leading with approx. 28% followed by Germany with approx. 26% of total production. For the period Jan – April 2020, the EU – 28 saw a 1.5% increase in total production over the same period for 2019. EU 28 produced 542k MT of SMP in first four months of 2020 against 534k MT for the same period in 2019.
For the period Jan-April 2020, France led EU – 28 SMP production with 158k MT (approx. 3.2% higher than 2019 for the same period). Germany followed with production of 143k MT (approx. 4.1% higher than last year for the same period). Poland contributed with 58k MT of SMP which is 5.8% lower than last year for the same period.
While examining April prices, we saw a sharp fall against March, but later the price started inching upwards slowly with June pushing it further up as economies gradually began to reopen. SMP from Germany saw an average price of 2,453 Euro/MT FOB in June, as compared to an average price of 2,640 Euro/MT FOB in March 2020 and 2,148 Euro/MT FOB in April 2020.
SMP from Oceania has also followed the downward trend moving to 2,262 Euro/MT FOB in early June 2020, as compared 2,487 Euro/MT FOB in March 2020.
SMP prices from the USA have also followed the same trend as EU and Oceania. American prices moved from 2200 Euro/MT FOB in March 2020 to 2,000 Euro/MT FOB in June 2020. It recorded a low of 1800 Euro/MT FOB in April 2020.
As per current market sentiments, the price of SMP is expected to continue the upward trend for the next couple of months as global markets slowly reopen for trade and imports.
WMP: The production of WMP in Europe showed an increase of app. 8.8% in the first four months of 2020. For the period of Jan – April 2020, EU 28 produced approx. 283k MT of product as against 260k MT for the same period last year.
Germany, which was the largest contributor in 2019 with app. 36% of total EU WMP production saw an increase of 5.9% in the first 4 months (Jan – April) losing at 101k MT. Followed by Netherlands, the second largest producer of WMP from EU with 22% of total WMP produced out of Europe, saw an increase of 16.4% in WMP production and contributed with 65k MT of WMP for the period Jan – April 2020. France saw an increase of 18.3% in its WMP production for Jan – April 2020 period with a total production of 41k MT.
The German WMP prices dropped by approx. 8% in Q2, 2020 moving from approx. 2970 Euro/MT FOB in March 2020 to 2,693 Euro/MT FOB in June this year.
WMP prices from Oceania showed a comparatively lower drop of 2.75% in the last 3 months. WMP prices from Oceania have dropped to 2,540 Euro/MT FOB average by mid-June, as compared to approx. 2,610 Euro/MT FOB in March 2020. The prices did see an increase in between during April, when Oceania WMP traded at 2700 Euro/MT FOB.
Although many dairy manufacturers predict prices to continue increasing in the coming months, there is still a lot of uncertainty looming around these prices for the coming months.
In conclusion, with the travel restrictions in place, the GCC will not see the temporary decrease in the residing population unlike earlier years when a large population used to leave for vacation and home countries during the summer break. This should provide a consistent consumer base for Q3 thereby keeping the momentum high throughout the summer.