DAIRY COMMODITY UPDATES - Q2 2019

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The upward price movement trend of SMP which started in Q4, 2018 and continued in Q1 as well, kept following the same route in Q2, 2019. Starting from under 1,600 Euro/MT FOB in Oct 2018, SMP from Europe closed at around 2,065 Euro/MT FOB for June. This is an approx. 5% increase since March, when the prices were trending at approx. 1,965 Euro/MT FOB levels from Europe.

On the other hand, SMP prices from Oceania dropped to 2,120 Euro/ MT FOB in June, as compared to 2,296 Euro/MT FOB in March. However, the prices of SMP from Oceania, are still higher than EU SMP prices, even after the drop.

SMP prices from USA also showed a steep increase in Q2. The prices moved from 1,890 Euro/ MT FOB in March 2019 to 2,045 Euro/MT FOB in June 2019; an 8.2% increase in 3 months.

WMP prices from EU showed an approx. 2.9% increase in Q2 moving from approx. 2,900 Euro/ MT FOB to 2,990 Euro/MT FOB. On the other hand, the WMP prices from Oceania have dropped below their March prices. The June price for Oceania WMP was approx. 2,715 Euro/ MT FOB as against 2,820 Euro/MT FOB in March this year.

Some more points worth sharing in the context of dairy commodities can be summarised as below:

1. Hot summers in Europe Higher temperatures and longer summers in Europe are expected in 2019 as well, as they were seen in 2018. This is expected to shorten the season in case there is no rainfall. Certain parts of Europe are already struggling, as the milk intake is lower than the forecast, leading to challenges. Besides, there seems to be no availability of milk from Europe for Q3. These factors can keep the pressure on the SMP prices and keep them firm.

2. Sudden increase in demand for German SMP Germany contributed approx. 24% of milk powder exports out of EU LY. The import of German origin SMP by China were app. 22,000 MT for 2017 and 2018. However, this year China has already imported close to 8,800 MT in Q1, 2019 which is approx. 250% higher than Q1, 2018. If the trend continues for the rest of the year, we may see an approx. 73% increase (app. 16,000 MT more than 2018). A similar increase in imports has been seen by other nations like Egypt who imported 7,350 MT of SMP from Germany; approx. 27% higher than Q1, 2018. The shorter season and increased exports could keep the price trends upwards for the rest of the year.

3. Change of product mix The increased demand for cheese led to a change in the product mix out of Europe. Based on the analysis of the product mix for the first four months (Jan- April 2019), it can be clearly seen that the European dairies tried hard to find a balance between the product mix to achieve the maximum returns. While cheese saw an increase in production across various EU nations, butter saw an increase in exports only from Germany, while it dropped in France and Netherlands. The SMP and WMP production from Europe dropped significantly.

Cheese from EU (Germany, Netherlands and France) showed an approx. 2.5% increase.

The SMP production dropped by 3.6% overall (key drops in Germany by approx. 12% and in The Netherlands by approx. 15.5%).

WMP production dropped by 8.1% approx. (key drops in France by approx. 9.3% and in The Netherlands by approx. 11.2%).

4. Shift from WMP to FFMP The demand for FFMP has not slowed down and it is expected to stay firm in the coming months as well. This has also created an increased demand for milk solids, thereby keeping the SMP prices on the rise, while also pushing the FFMP prices upwards. With limited availability from Europe and higher milk solid prices from Oceania, the FFMP prices are expected to rise further during the year.

 

Market developments that can make a difference:

  1. The dropping butter prices are pushing the EU suppliers to produce more WMP then the SMP + butter combination. Although the trend is more regional and confined mainly to Germany, but the same cannot be ignored, considering the high export ratio that Germany holds with EU exports.
  2. The increased demands of SMP from Germany by China, Egypt, Saudi and other regions and availability of SMP shrinking, it may be an opportunityto book long.
  3. BMP – the availability of BMP continues to be a concern and the status quo does not seem to change in the short run. The availability of BMP isexpected to reduce further in the summers, as the local consumption of fresh buttermilk goes up in Europe.