10 August 2023: Middle market blues

The seemingly insulated milk powder market carries on its sideways drift this week, whilst larger issues dominate proteins and both sorts of oil.

Sweet whey posts a modest 2% increase, but that’s only up €10, while skim is unchanged. Reports from the markets have warehouses still full, and masses of off-grades being hawked by increasingly desperate middle market traders. There’s a difference of prediction between Lacto Production and me, in that I’m still wedded to the opinion that everyone’s still on their holidays and September will see the traditional hike, especially given the historically low values, while Lacto see the price plateau continue through September (Bookmakers' Note: put your money on Lacto).

Outside our oversupplied market bubble, Midwest rains have seen both beans and meal drift lower over the week, but soy oil has remained pretty much unchanged, propped up by crude oil raging higher on OPEC concerns. Both Saudi and Russia have threatened to continue withholding crude oil into September and beyond, forcing prices 13% higher over the last month, now tipping $85. Saudi Arabia may be able to pull it off, but a cash-strapped Putin is likely to break ranks sooner.

BDC agri is the UK broker for Lacto Production milk and whey powder products.

For further information and prices, contact Greg Dunn on 01206 381521 or g.dunn@blackdiamondcommodities.com

27 July 2023: What's going on?

I’m not crying over spilt milk, but still wondering how it can possibly continue to spill. Sweet whey dropped another €20 (-3.5%) on the Dutch market, but skimmed milk held its price unchanged for July. Arguably, they should change places, as skim milk still has some producer margin in the bank, but whey is now so far below cost of production it beggars belief. It must be said again, though, that relatively few trades at lower levels in Holland certainly aren’t reflective of the French whey market, which actually rose €10 over the week and is now well in excess of €100 over the Dutch market.

Same old, same old is the reason for whey’s demise; the huge backlog of stock built up during the wholesale withholding of product that fuelled last year’s bull run. But how much lower can it possibly go? We are now officially in the silly season of vacation absenteeism, so transactions have slowed considerably, and we may not see a significant upward turn until later in August, but the collective return to the desk and a rush of short-covering may well light the touch paper.

The same thing is happening in other milk fats and proteins, and largely for the same reason. Wheat gluten production remains in the hands of four proud producers, who have largely ignored the collapse in whey and to some extent skim milk markets, but have now broken ranks. Prices have been slashed by up to €100 this week as producers chase scant interest. Likewise for fat filled whey, which is dominated by a single open-market producer, who hasn't seen the warehouse floor for a long while, and is now slashing and burning their own market to get the product back to previous inclusion levels in least cost formulation.

And what’s even more staggering is that global protein and oilseed markets are still raging as the US new crop soya swelters and the bumper Brazilian crop export pace heats up, with China back into the market.

The whole soy complex is up, with soy oil the weaker leg, but supported by crude oil topping $80 a barrel. Palm oil also put on a few ringgits in support.

BDC agri is the UK broker for Lacto Production milk and whey powder products.

For further information and prices, contact Greg Dunn on 01206 381521 or g.dunn@blackdiamondcommodities.com

20 July 2023: "History is bunk ...

The famous and often misinterpreted statement by Henry Ford may chime with my resistance to the pseudo-science of predicting the future by examining the past, but this graph says something to the most disbelieving of sceptics.

The wizard’s hat caused by the Ukraine war is no surprise, but the decline close to levels last seen in the financial crisis of 2008/9 and the 2016 slump is inexplicable, given the spiralling cost base of production and raging protein prices, and now grain, from the Black Sea shipping deal collapse. History tells us we could see prices go down significantly further, but given what’s going on in the world beyond milk powders, I have to agree with Henry on this one.

To detail, sweet whey shed another €20 this week, another 3.5% lower, making the cumulative loss a staggering 15% since the beginning of the month. Having said that, the French market remains unchanged, now €110 higher than the headline Dutch market shown above (which is odd, given the haulage differential between Rotterdam and Brittany is far lower than that). Skim milk powder has remained stable at €2110 this week, and spot material is still freely offered. Other fats remain relatively cheap, with the exception of fat-filled product, which is controlled by far fewer producers than the macro feed materials.

What is curious is the price relationship between whey and skim, on the basis of protein content, the argument being that to rebalance the equation on that parameter alone, whey should rise and skim should fall, but as both markets are still suffering the hangover of the wilful withholding of product to fuel last year’s bull run, there is no cross-referencing to predict the next market move.

Elsewhere, palm oil has jumped up to levels last seen in early March (MYR4000), now up 800 ringitts since the low at the end of May. Soyabeans rose marginally over the week, but meal put on $25, leaving soy oil gently firmer. Crude oil is holding up in the mid $70s, so biofuel mandates are still supporting soya and palm oil.

The tin lid on prices is the slump in sterling the moment a downtick in inflation prompted the chatterati to speculate that UK interest rates will fall soon.

BDC agri is the UK broker for Lacto Production milk and whey powder products.

For further information and prices, contact Greg Dunn on 01206 381521 or g.dunn@blackdiamondcommodities.com