Rabobank flags rising global dairy prices, warns of downside risks ahead
While global dairy commodity prices continue to climb in most key exporting countries, the second half of the year is expected to bring increased downside risks.
She notes that whole milk powder price for shipments in C2 (shipment date December 2018) lifted marginally, by 1.1%.
Higgins says this suggests Chinese buyers are procuring stock to land onshore in China to receive the lower tariff rate; a set volume of WMP and SMP will enter into China from 1 Jan 2019 free of tariffs – after the quota is reached, a 10% tariff rate will apply.
WMP price dropped 1.2%, to US$2,753/tonne. The GDT price index dropped 1.9% to US$2,901/tonne: the ninth consecutive fall or flat result and the lowest result in almost exactly two years.
“The general theme remains: The anticipation of a bumper season from New Zealand and product on offer through the GDT Events increasing in line with those expectations has provided no procurement urgency and prices have slipped lower as a result,” says Higgins.
Skim milk powder price softened just 0.3% to US$1,982/tonne.
Higgins says SMP is one of the few Oceania commodities notat a discount to Northern Hemisphere product, with the bulk of SMP already committed to buyers.
Aging SMP stocks remain burdensome in Europe, India has tagged a stockpile of SMP for export (helped by incentives for disposal onto export markets) and US non-fat dry milk stocks are higher than the prior year. “But – some potential good news for SMP hit the wires yesterday. As part of the USMCA trade agreement (replacing the old NAFTA) Canada has committed to limiting surplus SMP onto global markets. This is helpful in a market overloaded with surplus aging SMP,” she says.
Falling fat prices saw butter move lower by 6% to US$4,016/tonne, while anhydrous milk fat slipped 4.4% to US$5,069/tonne.
Higgins says a two-tiered global butter market has appeared: Oceania butter prices have recalibrated back to levels not seen in two years, yet European butter prices remain elevated.
‘It’s important to note that fat fundamentals haven’t significantly shifted: dairy fat demand is still robust at both foodservice and retail level.
“Fat stocks still remain low globally but the anticipated short-term lift in NZ milk is enough to see softer prices. Further, fat-filled milk powder with ample volumes of SMP could continue to provide pricing competition in the short term.”
Higgins anticipates butter prices to remain elevated over the next 6 – 12 months – although peak prices have passed.
