Analysis Milk powder
Has the milk powder market reached its peak?
Milk powder prices continued to gain ground in January. Historically, prices are already at high levels. The question is whether this will succeed now that a large customer is importing considerably less volume. At the same time, the high oil price is a support in the market.
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The demand for milk powder remains as good as ever. Or is it mainly the tight supplies that gave the market a boost? Be that as it may, milk powder prices have risen sharply in recent months. The DCA quotation for skimmed milk powder is approaching the €3.600 limit per tonne. Whole milk powder seems to be on its way to €4.500 per tonne. And at more than 1.300 per tonne, whey powder is also expensive.
The reason for the price increase is partly due to the significantly lower milk supply in Northwestern Europe. In addition, cheese also yields well. With the current high gas prices, processors prefer to cheese the milk. Noises can be heard causing some powder towers to not rotate. This is also due to the high raw material prices in the form of skimmed milk concentrate. High prices do not automatically mean that the margins of powder producers have improved noticeably.
China is buying significantly less
In mid-February the market was in two minds. The undertone of the market is good, but the question is whether the price recovery can continue now that a major buyer has dropped out. Chinese import volumes have shown a significant decline since October last year. Import figures were also significantly lower in December. Compared to the same month in 2020, Chinese imports of skimmed milk powder fell by 22% to approximately 20.000 tons. Whole milk powder even plummeted by 39% to more than 30.000 tons. This decline indicates that China has better organized strategic food reserves. In addition, based on roughage imports, China itself produces more milk, although there are no recent statistics on this. It remains to be seen whether Chinese purchasing interest will return.
High oil prices can provide support
At the same time, it is likely that countries in the Middle East and Africa will import more now that the oil price has risen to $90 per barrel. On paper, this benefits the purchasing power of oil-producing countries and history shows that milk powder exports can benefit from this. In recent months, European export figures to oil-producing countries have shown a mixed picture. While Nigeria imported significantly more, sales figures to Algeria and Oman actually showed a decline.
All in all, a stable to slightly rising price trend is most likely for the coming weeks. The futures market prices on the EEX are close to the physical market prices and this supports the above expectation.