8 July 2022: Slide levelling out?

The above pictogram perhaps sums up the traders' market stall over the last quarter.

Soya and palm oil are very interesting currently. Both have shed bucketloads over the past couple of weeks, but palm losses have slowed down while soya oil has dived from 72 cents to below 60 cents in one week. That to me is the most telling, if we believe the world of milk powders is tied inextricably to vegetable oils. If it is not, the real world of significantly reduced liquid milk supply is having more of an equilibrial effect, and we see only a quarter percent coming out of skim milk prices (down a paltry €10 this week).

Yes, sweet whey may be down another €40, and just shy of 4% lower, but this is trader heaven, and as skim milk is crash-landing, they would delight in hiking sweet whey very soon.

All that is of course dependent on geopolitics, speaking of which, recent goings-on have put a couple of cents on the pound against the euro, so UK prices are commensurately cheered.

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

1 July 2022: Supply and Demand change places

The old adage may be that those who can, trade, and those who can’t, write books about trading, but the current situation differs from the facile scenarios above, as demand is plummeting while supply rockets, and prices slump as quantity surges. Blending plants stand largely idle whilst buyers defer buying decisions for anything other than spot necessities. What is unprecedented during recent times is the steepness of the decline, particularly in sweet whey.

Headline numbers are that sweet whey had another collapse, down another 7% (-€80), now down €400 from the late April highs of €1440. Skim had another more modest decrease, down 1.3% (-€50), having now shed over €300 from the €4100 highs. What’s interesting is that both palm oil and soya oil have shed similar percentages to sweet whey over the same period, so there is definitely connectivity there, and the root of that is probably global food inflation really starting to bite demand. Better weather in the US has weakened soybeans and soy oil, but meal has hiked.

It is probably sensible to tease apart the two strands and look at the specifics acting on whey and skim milk. Speaking generally, whey is a byproduct and skim milk a primary product, although both have higher value demand from edible markets.

Sweet whey availability is a constant, varying annually according to production peaks and troughs, for example the late summer/early autumn Christmas cheese campaign. Beyond that, the market is manipulated by producers and traders alike, withholding material to hike the market, and dumping when the commensurate slide starts. Two Christmases came at once for sellers at the end of 2020, and the monumental rise caused by the industrial scale withholding of material began. That only broke at the beginning of April this year, as the edible market responded to inflationary pressures, and you don’t need any lectures about pressures facing the global pig industry.

What is interesting is to look back at the last time the lunatics took over the asylum, Peak Oil in 2007, and the commensurate crash. What’s different this time is that the lunatics are politicians, and geopolitics are fundamental in food pricing, arguably for the first time since WW2.

Skim milk, on the other hand, is primarily linked to the cost and supply of milk. Whilst whey production is a constant, processors extract their margin principally from the sale of cheese, and trouser whatever they can from the byproduct. Spraying towers need the numbers to add up before processing liquid milk, and with a global reduction in liquid milk supply, and the highest prices since the old king died, it isn’t surprising to see much stronger fundamentals acting on skim milk pricing. Yes, there is magically more supply available now the market has broken, but no whiff of panic that we see in the whey market.

In summary, sellers remain convinced the market will turn north soon, buyers the opposite, but the best crystal ball to invest in would predict favourable US/Canadian rainfall and an increase of grain/oilseed shipments from the Black Sea, albeit only at the moment to ‘friendly countries’.

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

23 June 2022: Inexplicable market

Perhaps you should sit down to receive this, and I still can’t quite believe I’m writing it, but sweet whey plunged just shy of 10% in one short week, and skim followed, sort of, by losing 2.5%. Whey down €120 per tonne, skim by €100, quoted on the Dutch market. So much for ploughing its own furrow, it’s disappearing down its own plughole!

Quite what’s going on, I don’t know, thus the banner headline, but here’s a few snippets of market news. Lacto Production received no fewer than four separate offers of 1,000 tonnes of downgrade (off-colour Disc C) skim milk powder, and even if it is the same lot being hawked around, it is tantamount to trader panic, having hung on to the tiger’s back too long. However, on the plus side, sweet whey is offered in France for €100 over last week’s price, so there is no cohesion in local milk powder markets, and thus this week’s offered prices only reflect market sentiment, and we’ll wait while next week to see if the collapse consolidates.

Looking elsewhere, the US and Canadian soya and corn crops had a rough week of weather, hotter even than the Saharan sirocco Europe basked/baked under, but surprisingly contra-traded down on beans and oil, with only meal holding relatively firm. But the real daddy this week is palm oil, and what a slide, off nearly 40% from the early May highs! Hopefully the graph below shows a collapse to levels last seen at the end of last summer, before silly season began. The back story that has driven this dive is the ham-fisted attempt by the Indonesian Government to rein in domestic inflation by severely limiting palm olein exports in April, possibly under the misapprehension that palm oil had gained more respectability as the replacement for sunflower oil. This caused significant stockpiling and tank space ran out, prompting an unseemly sell-off in an otherwise stable to bullish global vegoil market.

Maybe this is milk powders realigning with oilseeds, so the next week will hopefully give us more insight into whether this calms down to become a correction, or the dive continues.

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