24 November 2022: The revaluation of food

Last week’s jaunt to Eurotier took me out of the market for a week, but talking around milk powder suppliers, very mixed views emerged on where skim and whey are heading. The consensus, if there was one, was that sweet whey has hit the bottom, but probably still more slack in skim milk.

Sweet whey has flatlined at €890 for six weeks straight, despite predictions that it would slide further from the highs of €1500 seen in April. Heavy supply from cheese production has been balanced by increasing demand from China, as the pig industry recovery is now well established and dollar strength has favoured European supply.

Skim milk has shed €50 a week for the last fortnight, now down to €2800, and it’s same old/same old, withheld stocks still sitting in warehouse with muted forward demand and just hand to mouth buying. The graph shows that skim milk is now at pretty much the average price for three years, but what is interesting is the juxtaposition of the smooth increase and the much sharper decrease, which is unusual and undoubtedly proof of the upwardly engineered market.

The soy complex has lacked direction, as S E Asian demand is slack, but concerns persist about a triple dip La Niña weather pattern denting Argentinian sowing intentions. Palm oil has remained around the MYR4000 mark as oilseeds generally hold their value, and coconut oil remains expensive.

It seems that edible commodities are dissociating from the pool of traded things, and the fundamentals of supply and demand are refocussing on the absolute fundamental that however high the lithium futures price gets, food is far higher up Maslow’s Hierarchy of Needs than flat screen TVs or iPhone 14.

The soy complex has lacked direction, as S E Asian demand is slack, but concerns persist about a triple dip La Niña weather pattern denting Argentinian sowing intentions. Palm oil has remained around the MYR4000 mark as oilseeds generally hold their value, and coconut oil remains expensive.

It seems that edible commodities are dissociating from the pool of traded things, and the fundamentals of supply and demand are refocussing on the absolute fundamental that however high the lithium futures price gets, food is far higher up Maslow’s Hierarchy of Needs than flat screen TVs or iPhone 14.

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

10 November 2022: Downward spiral continues…

Another predictable week for milk powders; sweet whey posting unchanged for the third week running, whilst skim milk shed its largest percentage in the current cycle, down nearly 5% on last week, or -€150.

Taking the easier one first, skim milk has now fallen from €3600 to €2900 in five weeks, so call it 20% lower. The highs were engineered by withholding product, so processors and traders alike can repent at leisure as stocks still far surpass demand, so it seems fair to assume further discounting will happen. Interestingly though, the German market is called unchanged on the week, so perhaps some sign of the handbrake being applied in the wider market.

Whey is harder to call, as it has shown much more resilience than skim, but the fundamentals are as weak, in that we are currently seeing maximum production for cheese, and the biproduct has to go somewhere, so prices could theoretically fall below cost of production (currently circa €750). Liquid whey demand for pigfeed is also limited due to environmental constraints, so the reluctance of the headline Dutch market to fall could be a smokescreen.

In other markets, soybeans went up, meal stayed flat and oil dipped a bit, which is an unusual balance of the soy complex. Palm oil drifted a few percent on the resumption of Black Sea sunflower oil export, but is supported by monsoon storms hampering peak harvesting.

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

3 November 2022: On predicting markets 2

This method I find more accurate than chartism, the age-old art of examining toad entrails! The other pictures I found were rather stomach-churning, so was relieved to find this graphic!

And that a difficult market to predict, as milk powders continue to ignore the wider world of proteins and vegetable oils. Skim milk has posted another significant loss, another 5% down the tubes, and a staggering 15% since the beginning of October, which historically is a meteoric fall. This is usually a feature of a rising market, as middle market traders dribble out a truck or two, and then shove prices up a hundred bucks, but this has desperation written all over it. That's good for farmers looking for less costly milk replacers, but desperate situations can and do turn around swiftly. Milk prices have increased yet again, so our friends the driers are losing both ends, and are unlikely to poke up with that for much longer.

The graph shows that we have been here before, a year ago, but a mirror image to 2021, suggesting we could potentially see prices in the mid €2000s, but I don't think so. Energy costs alone put production costs way above previous perceived lows, and with liquid milk prices nigh on doubling, and veg oils off the scale compared to last year, this private slump in skim milk powder looks dangerous. On the other hand, when Intervention was the market of last resort, the EU contracted hundreds of thousand of tonnes of skim milk, which was bought out by Dutch traders guess when? Yup, April 2020. Arguably, the buildup of stocks by processors and traders alike is akin to the Intervention days, as both camps starved the market in a two year orgy of profiteering, so now there is scant demand to slow the slide.

Sweet whey, on the other hand, is answering fundamental S&D pressures, posting a third week unchanged, with no obvious signs of needing to descend further, especially given the price of the common raw material as skim milk.

The soy complex has had a mixed week; beans up on Bolsonaran protesters blocking the roads into Paranagua, delighting US traders keen to supply China's demand, imports up 12% in September. Meal is even stevens, and oil posted modest gains. Palm oil put on another 200 ringitts during the week, but the Russian return to the Black Sea grain/seed shipping agreement hasn't yet shown in either soya or palm oil.

Currency is a funny old game. The moment the good old boys (and girls) at the BoE mirrored the 0.75% Fed rate hike, the pound fell out of bed, down two odd cents against both dollar and euro.

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