Global Dairy Dynamics – Montly Newsletter Jan 2020

By Prashant Tripathi
Jordbrukare Farms and beyond

COUNTRY HIGHLIGHTS

  • India sees some of its lowest temperatures in a decade. Thought this might not impact milk production in the region. Indina milk production is execte to reach 202 million tons.
  • Australia sees improving weather conditions and expects a welcoming 2021. These favourable conditions can propel the milk production by a further 3% YoY to 9.4 million tons.
  • New Zealand struggles with weather conditions, but milk production is forecast to expand by 1% in 2021 to record 22.2 million tons. Although there is currently some dryness in the North Island, normal rainfall conditions are assumed to prevail in 2021.
  • The US is going through a wintry blast which can worsen due to an incoming polar vortex. The annual milk production will grow 2% YoY to 102.7 million tones/
  • Cloudy with a chance of thunderstorms in Argentina. Heavy rain warning in Brazil, settled conditions to follow. Mixed weather is expected in central Europe with scattered rain across northern parts of Germany, the Netherlands.
  • European Union, going through some of its coldest days and can experience prolonged winters. For 2021 growth in milk production is expected to slow from the strong pace of 2020 to reach 158.1 million tons, with is 0% YoY.MARKET IN LAST LEG OF 2021The dairy market was stable in December, with the right balance between demand and supply. As is traditional at the end of the year, some producers wanted to clean their warehouses, creating short-term opportunities inside Europe. The main challenge was logistics, as trucks were not easy to find and sea freight also increased during the month. India also observed some recovery in SMP prices, restoring market confidence.

SKIMMED MILK POWDER

During December, SMP of US origin remained the most price competitive in the world. The main drivers for this were milk production (Nov almost 3% up YoY) and the exchange rate (the USD weakened by 2.5% against the EUR). Throughout December, NFDM on the CME traded at slightly lower levels but corrected itself again towards the end of the month. SMP traded at similar levels on the world market as in November, which was between USD 2700–USD 2800/mt CFR. In general, most European SMP producers are comfortable. As of now, milk production in Europe will only increase, and it needs to find a way on to the world market. Unlike the US and Europe, New Zealand milk production seems to be lower than expected. After a strong start to the season, the Northern Island of New Zealand is now reporting some heavier droughts than expected, resulting in less milk for November.

SMP DEMAND

The demand will be strong enough to keep the SMP prices firm. The US recently announced the fifth round of the Families Food Box programme and it is expected that this programme will absorb a reasonable percentage of milk. The US has also been exporting significantly more (+25% YoY), while exports out of the EU have been slow in 2020 (-14% YoY). Therefore, we think that prices from the US will increase and that the gap between the US and the EU will soon be narrowed due to this. Also, our outlook for the long term is bullish, as most end-users still need to buy for Q2 onwards, more people will get their vaccinations, meaning that there is light at the end of the tunnel, and there are no large amounts of stocks being held. The previous GDT results were already showing this.

GLOBAL DAIRY COMMODITIES PRICES:

Indian dairy sector is more or less insulated from the global, but in our multiple studies, we have found Indian milk solids prices very closely follow global milk prices. To bring a better overview, we have developed a global milk price index in INR.

Don’t miss the incoming webinar on Global Dairy Outlook 2030 on January 22nd at 11.30 am CET

Author Prashant Tripathi

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