Global milk supply growth has slowed to a halt, while trade volumes are growing with attractive commodity prices for buyers. The overall market is firming as a result, but the conditions affect the outlook for each commodity differently.
However, we can’t ignore the economic and political context for the outlook as the ongoing effects of the US-China trade dispute and the confusion of Brexit present clear dangers to the market’s stability. The cloud of a Brexit “no-deal” hangs over the market with moderate risks for disruption to the significant cheese trade into the UK, and potential impact on other commodities if milk use in the UK’s major cheese suppliers’ changes.
The clearance of SMP intervention stocks shifts a large volume of product into various intermediary and downstream storages in the supply chain but is expected to keep SMP prices firm in the short-term, with expected deep cuts in SMP output through Q1 and into the early Spring period based on projected milk availability.
Pasture conditions in NZ have been excellent, pushing milk output to record levels. The remainder of the season looks favourable, with the risk of El Nino receding, but weather will still play its part. Chinese milk powder demand has surged significantly to help soak up NZ’s additional WMP output.
Cheese
EU prices are improving with slower growth in supply and better SMP/butter stream returns. Weaker US sentiment with concerns as to strength of export demand, while domestic demand disappoints. Flat trade with weaker import demand in US, Australia, Korea and China.
Skim Milk Powder
Intervention stock is practically cleared. EU prices are trending higher as the stocks reduce, fresh market tightening with slower Winter output. We’re seeing improved premiums for NZ SMP over EU and US product. Growth in export trade remained strong in Q4 which is driven by US and EU.
Butter
Slower EU milk supply is weakening cream and butter output. NZ prices are fragile but following EU’s lead, with slower stock turnover. Gradual recovery in overall trade, highly conditional on prices in developing regions.
Whole Milk Powder
Values largely driven by butter and SMP stream returns, weakened by increased NZ and Latam availability. Moderate growth in NZ milk supply in 2018/19 appears priced into futures/GDT.
Whey
US market drastically weaker in response to slower Asian demand and slower output of WPC products. African flu in Chinese pig herd may pressure feed demand. Weaker whey and animal feed prices in China are improving WPC-80 markets as stocks ease.
