3 February 2023: What goes down ...

The negative gravity in milk powder markets looks like it will experience the serious G forces of a correction sometime very soon, possibly the next fortnight, as the sums just don’t add up at the moment.

Sweet whey is the first contender for a correction. The severely opposing forces of a collapsing market against a significant global reduction in consumer demand for cheese and significantly higher drying costs suggest the impossibility for the spot market to have plunged another 7% in the last week to €670, but that is what has happened on the headline Dutch market. However, storm clouds are gathering for the bottom-pickers, as the declines in regional markets in Germany and France have not been as stark, and only smaller parcels are offered at desperate prices. True, the headline price for liquid milk has started to fall, but nothing like the discount under the cost of production of sweet whey.

Looking at the graph of the last fifteen years shows whey only spent four years cumulatively under the current price, and milk and the cost of drying it, employing people to do the job and borrowing money to fund it were all at a fraction of today’s prices for the whole time period.

Skim milk is a different kettle of fish, as although it has lost another 4% during the week, it still sits over the €2000 mark, the rough average for the last decade or so. Skim could take longer to turn round, as supply is still easy, but the fundamentals remain that liquid milk still costs twice what it did, and drying it even more so, so where’s the incentive to produce skim milk? Let’s face it, the Intervention sting of 2018/2019 signalled the end of cheap skim so how much further can this slide sustain?

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

26 January 2023: The wages of skim

The image above represents the continued surprise and anguish of an industry that wilfully starved the market through the Ukraine spring, as it continues to plummet. Both skim and whey are down 4% this week, €100 and €30 respectively.

Not that there is a discernible link, but the oil leg of the soya complex has been the weakest, again down 6-7%, whilst beans and meal have drifted, on timely rainfall in Argentina and surprise, surprise, no crunch of Chinese buying boots. I suspect the expected post-Covid boost of Chinese demand for proteins and oils is a long-holder’s dream, and the funds have really bought into a record long book. However, it is Chinese New Year, so commercial activity is limited. Palm oil continues to drift, with lower exports and a stronger ringitt the main drivers.

The biggest problem for CMR pricing is the fat-filled whey and wheat gluten. Both products are controlled by a handful of producers and no meaningful middle market, so while the processors are sitting on expensive purchases, there is no appetite to slash and burn on price. Whilst sweet whey prices have halved since April last, fat-filled whey has only shed 7%, and this essential component is limiting the downward potential of calf milk replacer pricing.

Milk processors and cheese producers are both reporting reductions in throughput, thus the supply side looks more limited than reticent buyers may expect, so I expect the graph to show a deep V when this market turns, as it no doubt will.

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

19 January 2023: Waiting for the Dead Cat Bounce

Despite their attempts to ride out the stockpiling of sweet whey and skim milk, processors and more desperate traders have thrown in the towel and taken any buyer’s hand off at the elbow. Both markets have fallen €50 in the last week, which represents a 6% slide in whey but only 2% in skim values.

However, (and isn’t there always a however?) there are signs that the recovering Chinese economy, which has kept soya prices so buoyant recently, has been buying the milk powder market down, so volume is starting to disappear, and the proverbial dead cat could bounce sooner than some may hope.

In supporting indices, the soya complex has been a score draw on beans, oil and meal over the past week. Palm oil remains unchanged, supported by soya oil, but with stocks building, and a spat between Malaysia and the EU on sustainability prompting the empty Malaysian threat to ban exports to Europe, China looks unlikely to take up the slack unless it’s cheap as chips.

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