Global dairy commodity update

Global milk supply growth is steadily declining as weather continues to be the major supply-side wildcard affecting the outlook for global dairy markets into Q1 2019.

The full effect of any European feed shortages on milk output and product mix choices won’t be fully understood until early 2019. These prolonged dry conditions with lower milk solids will impact product availability and we may see a lift in dairy commodity prices.

Meanwhile, closer to home, excellent New Zealand conditions have weakened, with risks of further drying due to the arrival of an El Niño event later in the season. This could curb milk production in the Oceania region with milk intake already significantly impacted by drought and feed shortages in Australia as well.

The worsening US–China trade dispute is of course a hot topic in the dairy world and is affecting confidence and purchasing power across the Asian region. These trade wars threaten to undermine slow growth in commodity trade with weaker demand likely for China and South East Asia into 2019.

Whole milk powder

Whole milk powder values are trending weaker with NZ availability expected to grow 3–5% in NZ peak milk supply. Competition from LATAM suppliers taking advantage of weaker currencies may weaken prices further. However, an expected El Niño event could dampen post-peak milk growth in NZ, which may significantly impact whole milk powder values.

Skim milk powder

Skim milk powder values are projected to gradually improve in the EU as skim milk powder/butter valorisation is competitive against cheese in the EU. Skim milk powder has continued its steady incline as EU intervention stocks are starting to sell through. Consequently, we may see prices start to firm.

Butter

The butter market is starting to free up a little in Oceania, in particular, NZ origin product which is based on good spring milk volumes. Australia on the other hand is well down on milk flow and hence fat is still tight. Continued growth in Chinese demand for fat-related dairy products may see a floor come into this market and stabilise prices at these levels.

Cheese

In Oceania, low fat values are expected to affect cheese prices. Furthermore, drought conditions in Victoria will hamper milk flow and could consequently put pressure on the supply of Australian specific cheddar. Across the globe the slowly improving turnover in US cheese stocks as a result of improved foodservice and retail demand could see prices firm.

Whey

We’ve seen whey prices starting to level off after a few months of solid pricing. Due to the loss of Chinese demand and higher cheese output, US whey prices have drastically weakened, bringing the market back into balance.