DairyCo

World Wholesale Report

Published 14 May 12

World Wholesale Report 

Please note:  After a review, it has been decided that World wholesale prices will be broken down into a regional basis: EU, US and Oceania.  As a result, price pages will soon be available separately for butter, SMP, WMP and Cheddar cheese. 

Supply continues to be strong across the major dairy exporters, with product production ramping up in the EU as the peak of milk production approaches.  With inventories building and only near-term demand, prices continue to ease.  However, as some EU prices now approach those of other global exporters, this could stimulate some buyers to return to the market.

Growth in global supply is estimated at 3%and is currently outstripping growth in global demand which is estimated to be running at between 2 and 2.4%.  As a result, there is a short-term global supply glut which is causing stockpiles to grow.  However, demand is holding up in the Middle East and South East Asia.

Although New Zealand is now into the seasonal decline, milk production is still strong.  The USDA Ag Marketing Service estimates that cumulative milk supply is approximately 10% ahead of last year.  For Australia, total production is estimated to be around 4% higher than last season in spite of flooding in Northern Victoria.  USA production is running 4.2% ahead of last year to end of March driven by a 3.2% gain in milk per cow and a nearly 1.0% increase in the dairy herd.

Ample availability of product has caused a wait and see approach from buyers on the world market with traders only purchasing for their immediate needs.  Falling prices encouraged some leading buyers in Southeast Asia to hold back on orders.  The all product global trade index fell by 9.9% at the latest Fonterra auction held on 17 April - the biggest decline between auctions in percentage terms since July 2010, pushing the index below its 10 year average and to its lowest level since September 2009 when the world was recovering from the depths of the global recession.

Rabobank analysts expect prices to continue to soften through Q2 on the back of surging global supplies.  According to Rabobank, Chinese buyers have filled their quota from New Zealand quite quickly and now have a short term stockpile of milk powder.  There is an expectation that they will be out of the market for a couple of months.  Meanwhile there are still ample supplies in New Zealand with Fonterra raising the amount of WMP on offer at the latest auction (17 April) to 20,000 tonnes.

WMP prices plummeted by 11% on average at the latest Fonterra auction held on 17 April with nearby contracts showing the most weakness.  SMP prices also tumbled by 7.6% with Arla Foods SMP sold at the lower end of this price range which is in line with current European SMP quotations.

Cheddar prices dropped significantly (-12.1%) at the latest Fonterra auction on 17 April.