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 first quarter of 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 Southeast Asia into 2019.
Whole milk powder
Whole milk powder values are trending weaker with New Zealand availability expected to grow 3-5 per cent in New Zealand peak milk supply.
Competition from Latam suppliers, taking advantages of weaker currencies, may weaken prices further. However, an expected El Niño event could dampen post-peak milk growth in New Zealand, which may impact whole milk powder values.
Skim milk powder
Skim milk powder values are set to improve in the EU as skim milk powder/butter valorisation is competitive against cheese. Skim milk powder has continued its incline as EU intervention stocks are starting to sell through, which means prices might start to firm.
The butter market is starting to free up in Oceania – in particular, New Zealand origin product, which is based on good Spring milk volumes. Australia 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.
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 improving turnover in US cheese stocks – a result of improved food service and retail demand – could see prices firm.
Whey prices have started 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.
By Dustin Boughton, Procurement, Maxum Foods – Your partner in dairy.