The surge in dairy commodity markets has stalled, with prices for butter and milk powders easing back by between 5pc and 10pc from the mid-summer highs.
combination of slower Chinese demand for milk powders, delays in the reopening of Europe’s food service sector, and increased milk supplies in the US has been blamed for the weaker dairy market sentiment.
The recent 3pc reduction in the GDT was compounded by falling Dutch auction prices. Butter fell to €3,750/t last week; this is 10pc or €400/t below the price levels reached at the start of June.
Skim milk powder (SMP) at €2,040/t is back 9pc since the start of June, while whole milk powder (WMP) is back 5pc to €3,060/t.
Richard Scheper of Rabobank said a slowdown in Chinese demand for WMP and SMP, on the back of reports of stock build-up, had contributed to the easing in dairy markets.
Mr Scheper added that the expectations around the food service sector’s reopening and a possible spike in dairy demand as a consequence had been “too optimistic”.
“The reality is that the foodservice sector is gradually reopening, while the new wave of recent Covid infections isn’t supportive either. Moreover, the liquidity in the European dairy market is generally low at the moment,” Mr Scheper said.
“This is not entirely unusual for the summer holiday period but it also appears that the market is somewhat hesitant to take large positions due to the current situation and buy what they need for what’s just ahead of them. On a positive note this could indicate that there still is some uncovered demand towards the end of the year or early next year,” he added.
While Mr Scheper described milk supply growth in Europe as moderate, an analysis by Britain’s AHDB showed that global output for May was up 3.3pc compared to 2020.
The AHDB described the production hike as the largest year-on-year increase recorded since November 2017. New Zealand and the US recorded the largest increases, at 7.4pc and 4.6pc respectively. The estimated increase for the EU was put at 2.3pc, equivalent to an extra nine million litres per day.
Despite the increased milk supplies and weaker markets, Mr Scheper predicted that any downward movement in milk prices would be marginal towards the end of the summer months, and that returns to farmers would remain “above average” to the end of the year.
This view was shared by the ICMSA’s dairy chairman, Ger Quain.
“We think that even if there is some slight downward adjustments in markets, prices will settle very quickly and just slightly back. Supply is relatively high but so is demand and we can’t see any grounds for concern, and certainly not for any hasty overreaction,” said Mr Quain.
“This must be interpreted as the market pausing after a very long steadily rising graph and just settling down for Q3 and Q4. On the basis of the current supply-demand relationship, we think that markets will remain generally positive and give farmers the returns necessary to cover the costs that inputs and climate transitioning are certainly going to involve,” said Mr Quain.
The ICMSA representative claimed that dairy farmers had not seen the full rewards from buoyant dairy commodity markets through the first half of the year.
Mr Quain insisted that there is still a significant gap between where Irish processors had their prices set for May and June milk and the corresponding Ornua PPI.
He said milk suppliers will “want and expect” those strong returns for dairy commodities to find their way back to the farmers during the coming months.
