Which bright spot helps global dairy prices?

Extra milk in the United States and increasing milk supplies in the European Union (EU) are bringing the dairy market back to 2015, when prices fell sharply as a result of the imbalance between supply and demand. Can the EU get through this unscathed? And what does it do to New Zealand's role?

The weather has its impact
The GDT on Tuesday, October 17 removes some of the fog surrounding these questions. For example, it records an average decrease of 1%, which brings the average price to $3.204 per tonne. Whole milk powder became 0,5% cheaper and recorded an average price of $3.014 per tonne. Yet December still recorded a plus of 1,8%. Skimmed milk powder is taking a beating and becomes 5,6% cheaper to reach $1.797 per tonne. The volume sold decreased by 6,1% compared to the previous auction. Skimmed milk powder and whole milk powder both recorded lower prices for the first quarter of 2018.       

Bad weather culprit
On Monday, October 16, it emerged that the bad weather has had an impact on milk production in New Zealand. Currently it moves around the highest point. Fonterra still expects more liters of milk than in the 2016 season, but the increase fell from 3,2% to 0,9%. Further declines cannot be ruled out.

In the past this meant support for prices. Market experts were counting on a drop in prices, because there are too many developments that encourage lower prices. Those expectations came true, although it is not the price decreases that are recorded in Europe (EU). 

Also good news?
Yet it does not necessarily have to be bad news. For example, there is talk of higher exports to China, but that development is not reflected in the figures for New Zealand dairy exports. It suggests that the EU and the United States are able to sell more product in China. Good news for the EU, because it means that it will be possible to further expand exports to third countries. This is desperately needed to collect the extra liters of milk.   

Is the fact that the EU has higher dairy prices than New Zealand also taken into account? The GDT does not seem to have any influence on the European market yet. The increasingly expensive euro could still throw a spanner in the works here.

Further reduction is necessary
Less milk in New Zealand remains good news for sentiment, although a further reduction is needed to make a difference. However, the impact that the region has on price formation is becoming smaller now that surpluses are increasing in other places. The GDT already shows that other weather is on the way.

In the long term, pressure on prices increases as a result of growing supply. The price of whole milk powder is now receiving some support, but it is fragile and not sufficient to absorb the extra liters of 2018.

The dollar is €17 on October 2017, 0,8505.