European butter markets remained very well supported over the last couple of weeks while skim milk powder (SMP) levelled off a bit before pushing higher again this week, according to multi-national financial services firm StoneX.

In a breakdown of where the market is at the moment to AgriLand, Dr. Peter Meehan, senior commodity analyst at StoneX, said:

“The European butter quotation gained a further 5.9% this week, adding to the last week’s 2.4% increase leaving it up 21.6% since the start of the year. Spot SMP meanwhile was also higher this week [+1.5%] after last week’s relative stability.

The bullish tone in the spot market has also fed through to dairy futures markets, with EEX butter futures’ Mar-21 to Aug-21 strip up 14% on average over the last two weeks while EEX SMP’s front six months are up 8% over the same two-week period.

Dr. Meehan also noted that the 15% jump for the latest Global Dairy Trade (GDT) index last week has “given some considerable support” to global dairy markets in general.

He pointed to whole milk powder (WMP) as the standout performer at last week’s GDT auction, up 21% – which is its highest level since 2014 while SMP (+3.5%), anhydrous milk fat (+7.4%) and butter (+13.7%) also saw big gains.

Chinese demand

“Strong demand from China in particular was one of the main drivers behind last week’s GDT result while logistics issues are also causing some concerns at the moment.

We understand that a big increase in demand for shipping containers from Chinese exporters has resulted in them paying a premium to ship empty containers back into China for further exports.

These containers would typically be backloaded with commodities such as milk powders, grains etc. destined for the Chinese market, he explained.

“This in turn is creating a tightness of supply within China – meaning their buyers are coming out more aggressively, particularly for New Zealand product due to their relatively close proximity to China.”

Dr. Meehan noted that these logistics issues have also contributed to the “somewhat underwhelming” dairy export numbers out of New Zealand towards the end of 2020 and into the start of 2021.

Supply situation

Continuing, the analyst said: “There have also been some concerns over milk supplies which has added to the recent strength for dairy commodity markets.

“A pullback in milk supplies both here in Europe and further afield has also caused some unease among global dairy buyers.

Irish milk collections were only up 0.8% year-on-year in January – the lowest point of our milking season, although strong dairy calf birth registrations suggest we will see a milk supplies push on further ahead of last year in February and March assuming weather conditions remain favourable.

“Polish milk production also saw a more modest year-on-year increase in January [+0.5%] compared with what we had seen previously, Dutch collections were down 1.4% while German and France also look set to post some reasonably big y/y declines in January.”

UK collections remained pretty strong (+0.8% year-on-year) while New Zealand production was also up on last year (+0.8%) and Australian supplies bounced back sharply in January (+3.3%), Dr. Meehan concluded.