Dairy commodity markets continued to trend higher in recent weeks with both butter and SMP prices seeing big gains, according to multi-national financial services firm StoneX.
Outlining the latest market movements to Agriland, Dr. Peter Meehan, senior commodity analyst at StoneX, said:
“The EU Butter index climbed to its highest level since late February 2019 this week as seven gains in the last eight weeks sees the average butter price up €320 (+8.2%) since the start of August.
“The SMP [skim milk powder] quotation saw its eighth increase on the spin this week gaining €231 [+9.5%] in that period – sitting at its highest level since August 2014.
Dr. Meehan also pointed out back-to-back increases in the Global Dairy Trade (GDT) index, rising this week by 1%, on the back of a 4% increase at the previous event.
On the demand side, the analyst highlighted that “continued strong global demand” has been one of the key drivers behind the higher prices, adding:
“Chinese demand has been particularly strong, with the latest data showing Chinese dairy imports up 32% year-on-year in August with huge gains for WMP [whole milk powder] and increases for whey, cheese and SMP driving the increase.”
On the supply side, Dr. Meehan noted that milk collections have been a bit mixed across Europe which in turn has added to the recent bullish tone in the market.
“Five of Europe’s biggest producers – Germany, France, the Netherlands, the UK, and Poland – saw their milk production pullback into negative territory in July and, while Italy, Ireland, and Spain saw gains that helped offset some of the negativity from the big five, the increases in recent months have been more moderate than what we had seen earlier in the year,” he said.
In addition, milkfat and protein levels in the July milk were generally lower which, he added, is pulling collections even further behind last year on a milk solids basis.
European milk production fell 0.6% behind last year in July and milk solid collections were down 1.2% because of this.
Continuing, the commodity analyst said:
“Supply data for August is showing UK and Dutch collections posting smaller year-on-year declines than what was seen in July and early indications suggest a similar trend for Germany.
“French production meanwhile looks set to move back into positive territory while the US also reported more moderate year-on-year gains in August than what they’d had seen previously.”
Another contributor to the current strength of dairy prices was very high feed costs, he added.
This was because farmers were less inclined to supplementary feed at such price levels – which lowered both milk collections and constituent levels in the milk.
While feed prices have pulled back from the highs recorded earlier in the summer, they remain at elevated levels, he said.
Looking further afield, with European milk supplies now slowing down as the season winds down, attentions have turned to New Zealand who will hit their seasonal peak for milk production in the coming weeks.
“With New Zealand milk prices sitting at very high levels relatively speaking, production is likely to remain strong there so long as weather conditions remain favourable,” Dr. Meehan concluded.