The licensed bandits in Holland have certainly found the magic money tree in their intervention purchases a year ago. The linear increase continues this week, with skim up €40 week-on-week, with no sign of a breaking point. Theoretically, that is when skim-based calf milk replacers become more costly than feeding mother’s milk, and the last time this happened, arguably, was when skim plateaued in early winter 2104, when it stuck at €3300 for a whole quarter. Revenge, when it came in the second half of 2014, saw the the market nearly halve in value, and remain rangebound for three years, until it fell out of bed in the second half of 2017, dropping to the unsustainable level of €1300, triggering enormous sales into intervention, the market of last resort.
The SMP balance sheet looks dangerously weak, except for the fact that well over 100,000 tonnes is in the hands of the two Dutch traders who did the sting on the EU Commission a year ago, and they are dribbling out supply into a market that is essentially short. Milk production is low in New Zealand, and butter prices are too low, meaning that the creameries are extracting their margin from skim, and delighted to ride the coattails of this rigged market.
When will it end? History suggests in €700-800’s time, but there is no recent precedent to this rigged market. The only feel good factor is making a purchase and being quids-in in a week’s time.
Whey increased another €10 this week, which is unusual in the period of maximum cheese production, especially given the collapse in demand from the pig sector. However, the vacuum caused by skim's stratospheric rise has seen whey rise €10 shy of €100 since mid September, in a period when the fundamentals remained weak. So one really can’t expect whey prices to nosedive this side of a collapse in skim milk powder.
The Pound shrugged off some appalling negative growth figures early this week, in response to Tory gains in the polls. The markets essentially support Johnson’s reheated May deal, and with Labour and the Lib Dems retreating on Remain, sterling is likely to drift higher towards election day.
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
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