20 January 2021: Sacré bleu!

Two days after Blue Monday and not much sign of cheer, so let’s start with the one scrap of good news; sterling strength. The pound has climbed to multi month highs, possibly on stronger inflation than predicted, if the old rules of interest rates being used to manipulate inflation still apply. Sterling has been fundamentally underpriced throughout the second half of last year, so should continue to strengthen as inflation increases through the first quarter.

The bad news is that whey is up close to 5% week-on-week, and skimmed milk powder by 2.5%. As dairy farmers have faced 20-30% hikes in feed costs and not a pfennig extra for their milk, production has been reined back, exacerbating a spot supply situation, and with the middle market and producers hoarding spot material like lockdown lavatory paper, the €50 hike in both whey and SMP powders reflects the few physical trades that have taken place. Spot whey is literally unavailable, so blenders are in an invidious position of scouring further afield to obtain physical stock.

This situation is likely to remain in place deep into February and could easily extend into Q2, so possession of stock seems wiser than second-guessing a price collapse

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

14 January 2021: Up, up and a whey

Where to start, supply, Brexit or rain? Physical supply problems after new year are plaguing spot whey deliveries, which are expected to resolve, but certainly have pushed prices even higher. Whey is up €30 on last week, now €130 higher in ten weeks, and no sign of it slowing down. Much of the reason is domestic demand, and heavy Chinese buying (I read recently of a five storey 84,000 sow hotel complex coming online imminently in China) but ever since soya became the darling of the pension funds, pretty much everything edible has headed north. Repeating last week’s mantra, it looks like March is the earliest we’ll see a significant break in prices, following previous years’ trends, overlaid by hopefully South American new crop soya bending the charts south.

Skim milk powder is also caught up in the vortex, up €30 week-on-week, but at least physical supply is available, so the trajectory should break before whey does, on the basis that the Chinese aren’t buying skim.

A quick word on transport and Brexit. It seems, fingers crossed, that there haven’t been any delays at customs for the first deliveries post January 1st, but this may change after April 1st, when post-delivery clearance is discontinued. The extra costs have put about 10% on transport charges, so some of this week’s price hikes are down to that factor, however well Brexit has served the political careers of its generals.

The pound has finally enjoyed some of the expected benefits of the EU divorce deal that were muted by profit-taking in the immediate aftermath of the Christmas Eve agreement. At least a stronger pound is taking the edge off the hike in milk powders.

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

7 January 2021: Brexit Got Done

Happy new year to all, however weird this one is already turning out to be. I’ll confine my comments to the milk powder market and currency exchange rates acting thereon.

Whey powder is in the grip of a supply:demand imbalance that is getting worse, as predicted. Heavy demand remains from SE Asia, overlaid on brisk buying within Europe. Cold weather has suppressed milk production, which is exacerbating the squeeze. Taking the long view, the last two years saw the whey market break by February, and the fourteen year graph attached shows whey about mid-range. What is lacking from the fundamentals that drive whey prices are the co-products of lactose and whey protein concentrate; usually, when whey gets overpriced, lactose or demineralised whey feature, and pull whey lower, but these derivatives have been revalued because of Chinese demand and so do not act on the whey complex as they used to. When whey goes down, the gap between SWP and skim milk dictates when the dryers switch to drying milk. I think this year it will possibly take until March for whey stocks to recover in line with demand before there’s much chance of a decline in prices.

Skim milk is higher, although there aren’t the same low stock issues as with sweet whey. Slow milk production is the fundamental reason for the rise, although the market may well come lower before whey decreases.

Sterling has continued to surprise by effectively doing nothing. As the world and their grandma knew there would be a deal, massive profit-taking limited the Pound’s bounce to two euro cents in the wake of the Christmas Eve deal, and last night’s riot in the Capitol even strengthened the dollar. It’s a strange world.

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