2 April 2020: Seesaw time

As the icebreaker of coronavirus smashes between the tectonic plates of the milk powder industry, the unexpected result is an unchanged market, this week, at least.

Here’s why. We discussed last week that whey production has pretty much stopped, as commercial use (schools, restaurants and their supply chain) has died a death, which has left whey technically unchanged, but practically short. On the other hand, skimmed milk powder is technically in oversupply, marked down a further €100 over the last week, but practically, processors aren’t selling into the void. Yesterday, Lacto Production saw market prices quoted at €1850 for SMP, but the cheapest actual offer was in excess of €2100.

So my analysis is that whey will probably shoot up to a new plateau, coinciding with a return to cheese production in a post lockdown world, but physically traded prices for skim milk will only slowly decline, and against a backdrop of a five week production window at Lacto Production, holding out for lower prices is a game for paper traders and not those needing to put product on farm.

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 March 2020: Meltdown

This is the hardest commentary to write, as the only fixed point in the market is exchange rate, which in the case of sterling is a horror story.

In short, there is no market, as in barely no physical trades reported and quoted prices are basically opinions of where the market might be.

Skim is quoted as much as €200 down on the week, and whey by up to €50, and on the face of it, that should translate into enormously lower prices, if your purchase currency isn't GBP.

The reality is skyrocketing logistic costs, as borders are closed and workforce pressures make physical delivery very difficult. This affects Lacto Production acutely, as they are a blender/processor/packer, so their inbound raw materials are affected as much as deliveries out. It is therefore no surprise to see the commodity markets in free fall when physical possession is the real problem.

Watching sterling fall three clear cents in ten minutes yesterday afternoon is a sight I will remember for a long time, if I'm spared. This is not a time for levitous political comment, but the best analysis of sterling's weakness I have found is summed up in this soundbite: 'In short, sterling is particularly sensitive to global investor meltdowns.'

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

11 March 2020: Catching the falling knife

Sit tight, this one's a long one.

In summary, the market is in free fall on skim, and being followed by whey, and dangerously so. Pricing websites are struggling to confirm actual trades, buyers stand out and the whites of the eyes of the producers are starting to show.

True, the skim market should be in free-fall, given the way it was artificially hiked throughout 2019. But overlay the effect of coronavirus on pretty much every market other than gold, and we have the dangerous situation of large-scale milk processing capacity potentially being mothballed and prices being marked savagely higher before production is restarted.

These are, of course, unprecedented days, but old trading adages still hold true; 'be fearful when everyone is greedy, and be greedy when everyone is fearful' and 'the market can remain irrational longer than you can stay solvent' come to mind. Of course, the opposite 'danger in catching a falling knife' is equally true, and the buyer's angst is exacerbated by inactivity in an unjustified bull market and equally by buying the market down.

In brief, whey is down €20 in France and €30 in the Netherlands (-4%) and feed grade skim milk is down a whopping €80 (-3.4%).

Dominic Cummings' first budget, delivered by a twelve-year-old who has nearly four weeks' work experience, was all about 'getting it done'. But once the crackle of the soundbites fade, the market decides, and the pound is currently sinking to levels last seen in the darkest 'no deal Brexit' days of last summer.

True, slashing interest rates by two-thirds played a part in sterling's demise, but dressing up what is undeniably an emergency budget as a carefully costed bonanza for the northern man in the street is transparent.

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