Updated: Jun 21, 2019
Bit of an essay this week, so pull up a chair ...
I have finally seen the reasoning of the Dutch companies that cornered the milk powder market. As we all know and grumble about, it was late October that skim milk powder started the long march north, but the signs were there as early as August that ASF would decimate the Chinese pork market, and it was a case of joining the dots to realise that the lack of pork would stimulate beef demand, which would require skim milk rather than sweet whey. It's worth reading the article below, which was written in French and, with a lot of help from Google, I have translated:
New leap in Chinese purchases of dairy products
Posted on Friday June 7th, 2019 by Virginie Pinson
In a context of relatively tight world supplies, Chinese purchases of dairy products were very dynamic in April. Europe benefits from the trade war between the United States and China.
The world's availability of milk remains fairly modest. Cumulative collection of the five major exporting basins (Argentina, Australia, New Zealand, EU-28, US) continues to weaken, posting -0.7% in March compared to last year, according to Cniel, which points out that the rise in Europe (+ 1.2%) is offset by the fall in New Zealand (-8.2%) related to drought. The decline remains in Australia and Argentina (respectively -10.6% and -8%) and the United States production fell 0.4%, the first in five years.
Effects of African swine fever
The dairy market is, in turn, suffering the effects of African swine fever, which decimates the Chinese herd. Thus, whey prices are suffering from the prospects of falling Chinese demand that uses this product in the diet of pigs. Conversely, the slump in pork supply is pushing China to switch to other proteins, including dairy, which is boosting already dynamic imports. In April, Chinese imports of dairy products soared by 31% in volume and 36.7% in value. In particular, purchases of milk and cream jumped 73% in volume, thanks to a 16.3% drop in the purchase price. Purchases of skim milk powder also increased (+ 30.9% in volume, + 34.8% in value). If New Zealand remains the main supplier (57% of volumes), the European Union now holds 26% of market share, because its shipments leap 212%, due to the place left by the United States. Their exports to China dive (-89%), undermined by the trade war.
Sylvain at Lacto Production makes the very good point that this bulge of unsold intervention stock really has grown whiskers, some of it is between three and five years old, so the bold traders could be left with egg on the faces if there's a wholesale dumping of long books. SMP is down a tad on both edible and animal feed grade in Germany, and whey is also down €10 in Holland. So with continued strong demand from China, against a market that was pushed maybe too high, we may be looking at a price plateau for a while.
The Pound is still basking in banana republic status, because of you-know-what. I think it was the Edwardian philosopher William Hazlitt who nailed it, but to paraphrase: 'the candidates are like rival stage-coaches, neck and neck on the same road, cantering towards the same destination, splashing each other with mud'. A Guardian headline from a couple of days ago also chimed with me - Behold, the Tory Leadership Candidates: all in denial, all in dreamland.