2 October 2019: Skim through the roof, whey still on the floor

Skim milk powder is really surpassing the wildest dreams of the Intervention stock long-holders, up an astonishing €70 since last week. Although we have seen prices a full €1000 higher than this no more than six years ago, it is the relative value of whey powder that suggests that SMP is well overcooked at these levels. When SMP topped out in December 2013 at €3300, sweet whey was also topping out at €1000, but today whey languishes 40% cheaper, with little support from the worldwide hog market. Given that the ex-Intervention stocks are well in excess of demand, and more milk towers are switching to skim, current SMP prices look dangerously and unsupportably high.

Lacto Production’s view is that when this market breaks, prices will likely fall hard, with the slide exacerbated by buyers standing out. But until then, the next weeks will probably see jobbing traders milk yet higher spot prices out of an exasperated consumer market. Farmers are facing lower milk prices and ever higher calf milk replacer values, so the pressure to feed liquid milk to calves becomes stronger, and demand decreases.

Whey remains steady after last week’s seemingly artificial price hike. Stocks seem plentiful with Christmas cheese production at full steam, despite traders’ claims of higher prices to come.

Sterling is trading in a narrow band, held sway by the clever money believing in the last-ditch Brexit deal, and the even-cleverer money allegedly stuffing Tory coffers full, pressuring for a no-deal exit to deliver on their short-selling of the Pound. One hopes they choke on the profits of selling the country down river, if that is their game.

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

25 September 2019: politics and milk powder markets both in uproar

It’s difficult to know what to start with, as politics and the milk powder markets are both in uproar, but I’ll kick off with milk. The fundamental change this week is that whey has bounced, up €30 in Holland, most probably because of a 3% reduction in European milk output during August, but helped along by dryers switching to more lucrative skim milk production. My feeling is that my long-awaited whey dumping from the USA ain’t going to happen this side of Christmas, so it’s time to throw in the towel on Q4.

Skim has firmed another €40 this week on both edible and feed grade, now up a full €200 in two months, which is a 10% hike. Whilst I have tipped this continuing rise and I can’t see it stopping just yet, it always comes down to the ridiculously high stocks in the long-holders’ hands, and that is what convinces me we won’t return or surpass the €3300 skim milk powder we saw at the beginning of 2014. It is also worth remembering that the market stayed north of €3000 for a whole year, so I don’t expect a cliff face graph when the market does break. This is the heavy time of year when winter CMR contracts are usually fixed, and sellers are feeding off the reluctant post-summer rush of buying interest, but November could be the earliest we’ll see any break.

I’ve been tracking the pound through the day, and surprisingly it has only weakened half a cent, considerably less than the government’s position. Whilst Jezza sits uncomfortably on the fence, and Borisconi’s financial peccadilloes are overshadowed by the porkies he told HM, it’s surprising to see the pound relatively buoyant at levels that are presumably close to the bottom of the range. If the Halloween extension is pushed through, and the election called, then we’ll probably see three or four cents off, but quite frankly, any predictions are useless in this terrible mess.

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

18 September 2019: the wages of skim far outweigh whey

Skim milk continues its inexorable rise, up €40 on feed grade and €30 on edible over the week. The first half of the old commodity traders' adage is ‘Buy in May and Go Away’, and it certainly held true this year, even if April was the bottom of the market (€250 below today, yes, €250!), but the second half ‘Don’t Come Back Til St Leger Day' (mid September) is off the mark this particular year, as it still looks like the long holders of the ageing ex-intervention stock and the middle market hangers-on will milk it yet higher.

However, there is a glimmer of light showing over the top of the hill, and that is at least one big dryer has switched from whey to skim, so given the enormous size of the long intervention stock purchases, and much less demand than supply on the skim balance sheet, and potential for far cheaper skim from the US, this flush could well be busted in Q4, possibly by November.

Given that the wages of skim (sorry!) far outweigh whey (sorry again!), and Christmas cheese production has already been in full swing, the expected slide in whey values hasn’t come about, and although we see the Netherlands down €10 this week, the market has only shed €20 in six weeks. Thus, I am less inclined to think a slide in whey is sustainable.

Currency remains buoyant, awaiting the Supreme Court decision on prorogation.

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