Dairy market analysis: Chinese demand puts floor under prices

Dairy markets here in Europe have remained relatively well supported over the last few weeks as strong Chinese demand continues to put a floor under prices, 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:

“There is also some concerns over German and French milk collections which have come under pressure recently although strong supplies from Poland, Italy, the UK, Ireland and Spain more than offset the declines in Germany and France, and this looks set to continue for the moment at least.

Here in Ireland, dairy calf birth registrations have got 2021 off to a very strong start which should see Irish milk volumes start to flow a bit earlier than last year.

This will also likely lead to increased milk supplies as we move towards the flush – although this will be heavily dependent on weather conditions between now and peak milk, the analyst noted.

“A sharp spike in feed costs could also play an important role in determining just how much extra milk we see both here in Ireland as well as across the rest of Europe,” he added.

Commodity prices

Looking at dairy commodity prices, Dr. Meehan said spot butter prices moved up by another 2.3% this week which extends its run of gains since the start of the year to +8.1%.

He added that skim milk powder (SMP) prices have also been well supported up 7.9% since the start of January although the EU SMP quotation’s bullish run came to an end this week as it held unchanged.

The support for butter prices has fed through into the futures’ markets with EEX butter’s front six months gaining 3.5% over the last two weeks while SMP futures have been a bit softer, down 1.3% over the same period.

“With GDT [Global Dairy Trade] taking place next week, the market will be keeping a close eye to see if the recent run of gains will be added to or whether buyers back off a little leading to a correction for the index.

“In the 10 GDT auctions since mid-September, the GDT index has posted nine gains and one decline, moving up by 24% in that period,” Dr. Meehan concluded.