Proteins driving the dairy market [297th edition of the Foodcom DAIRY newsletter]

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At the end of January, the dairy markets stopped moving in one direction. Milk procurement across Europe remains exceptionally high, ensuring a good supply in the liquid markets. At the same time, selling pressure has eased in several segments. As a result, we are seeing a strengthening of milk powder prices, stable to slightly upward markets for cheese and continued strength in the protein segment. Butter has stabilised, supported by higher cream prices, but high stock levels continue to limit upside potential. The divergence in price trends between the different dairy segments is becoming increasingly clear.

Milk powder

The market for skimmed milk powder has strengthened again. Food SMP is currently transacted and traded in the 2150-2250 EUR/MT FCA range, with some market participants pointing to levels approaching 2300 EUR/MT. Buying interest has increased, while the availability of offers remains limited, which has translated into supply tension in the short term and price increases.

Feed SMP has followed the food market. Transactions for February-March are reported at around 2300 EUR/MT DAP NL, while prices for Q2 are discussed near 2350 EUR/MT. However, despite the recent increases, doubts remain about the sustainability of these levels, given the very high milk procurement and intensive drying activity.

Milk concentrate (SMC) prices have risen further and are now in the 1400-1500 EUR/MT FCA Germany range, with slightly lower levels in France. Limited processing flexibility and strong milk inflows continue to support the concentrate market, while setting a benchmark for SMP prices.

In summary, dairy powders remain stronger in the short term, but high milk supply continues to limit upside potential in the medium term.

Cheese

Cheese markets remain stable to slightly upwards. Gouda and Edam are trading around 3100 EUR/MT. Producers are not signalling significant pressure and stocks are described as relatively young. Improved buying activity is supportive of maintaining current price levels.

Cheddar curd remains stable in the 3300-3400 EUR/MT range. With both the cheese and whey markets in good shape, some production, where possible, is being re-directed towards cheese. At the same time, the overall availability of milk remains high.

The cheese segment continues to stand out for its relative resilience compared to the overall dairy market.

Fats

The butter market is stable to slightly upward. Current spot prices are discussed in the range of 3700-3900 EUR/MT. Levels for Q2 are indicated around 3950 EUR/MT, while preliminary signals for the beginning of Q3 are around 4100 EUR/MT.

Market sentiment has improved. More buyers than sellers are active, despite persistently high butter stocks in European cold stores. Limited selling pressure and low market liquidity are supporting prices in the short term.

From a fundamentals point of view, however, supply remains high. Large milk purchases and rising stocks continue to limit the potential for further increases. AMF prices are also on an upward trend.

Fluids

Liquid markets remain well supplied due to high milk buying. Cream prices have risen to 3400-3600 EUR/MT, making up for earlier declines. Sellers are showing less willingness to offer the commodity at lower prices.

At current cream price levels, butter production costs remain relatively low. As a result, many producers prefer to run butter lines instead of selling cream, which favours both butter production and storage.

SMC prices remain stable in the 1400-1500 EUR/MT FCA Germany range. Strong milk inflows and limited processing flexibility continue to underpin the market.

Overall, liquid markets remain strongly supply-driven, although sentiment has clearly stabilised.

Whey powder and proteins

Sweet whey powder markets remain stable to slightly up. Feed SWP remains at EUR 1050-1060/MT DAP NL, while the food product is discussed in the 1150-1200 EUR/MT range. Demand remains stable with prices supported by high levels of whey concentrate.

Whey concentrate prices remain unchanged in the 700-800 EUR/MT range, but high levels continue to set solid price minimums for SWP and lactose.

Whey protein complex remains the strongest segment of the dairy market. WPC80 prices have risen further and are now discussed at 14 000-15 000 EUR/MT. Availability is very limited and much of the volumes for Q1 and Q2 have already been contracted. The key constraint remains the throughput of ultrafiltration plants.

WPI prices remain above 23 000 EUR/MT, with minimal spot availability and tight supply. Lactose prices are also on an upward trend, supported by stable demand and additional volumes diverted to reprocessing for infant mixes. European levels are discussed around 1240 EUR/MT.

Protein continues to clearly outperform the other segments of the dairy market and indirectly supports the whole whey complex.

What else?

Asia

Indonesia imported 1,383 dairy cows from Australia this week as part of the government’s $3 billion programme to boost domestic milk production. The plan is to quadruple production in five years by importing up to 1 million cows and bringing small farms into the system to support a free meal programme for 83 million children and pregnant women. Due to limited public funding, the authorities are encouraging the private sector to finance purchases. The latest shipment arrived at the port of Cilacap in Central Java and has been subjected to a mandatory quarantine and veterinary examination.

Oceania

Fonterra has begun an expansion of its butter plant in Clandeboye on the South Island, investing $75 million to increase capacity in response to growing demand. The project is part of the co-operative’s wider investment plan, which aims to spend up to $1bn over the next three to four years on value-adding and cost-efficiency initiatives. The new process line will increase production capacity and expand the butter range, including halal and kosher certified products, mainly for international markets and the foodservice sector. The investment is also expected to strengthen the flexibility and resilience of the cooperative’s production network in the South Island.