Market Report January 2019

Thursday 31st January 2019
Milk output in November 2018 was down -1.2% on same period in 2017, giving YTD January to November 2018 +1% on same period in 2017.

EU milk output however, into December 2018 and beginning of 2019 has milk slowed. Some of the reasons for the slowdown can be related to drought, fodder shortages, disappointing milk prices and phosphate restrictions in The Netherlands.

According to MMO (Milk Market Observatory), milk output will grow by approx. +0.9%, where the lingering effects of the 2018 drought could restrict growth due to lack of feed, high input costs and potentially higher slaughtering rates.

Trade tension continues to have an effect on the Global market.  Brexit still hangs in the balance while dairy exports to UK from Ireland continue in large volumes in the eventuality of a hard Brexit.  Trade tensions also continue with the US and China. On the other hand, in the EUhas finalised negotiations for a trade agreement with Japan. The remaining formalities are expected to be done in time for the agreement to become effective as soon as 1 February 2019.

GDT posts fourth consecutive gain with SMP performing the strongest on the back of the near clearance of intervention stock with just over 22,000MT of stock remaining. Cheddar reflected the gains in fat and protein prices, lifting 4.2% for the third gain in a row.

EU production of cheese in first half of 2018 was strong due to increased milk supplies and EU manufacturers favouring cheese production as a result of weaker butter prices and flat SMP prices. However production fell in November due to weaker milk flows but pricing in early 2019 is finding a firm undertone particularly as a result of evaporation of the intervention stocks, further rising SMP prices and a solid butter market.

Global dairy risk assessment

Upside Influence

  • EU milk supply slows due lack of quality fodder
  • US milk growth slows due to tighter margins and culling rates
  • Reduce stock to virtually zero out of SMP intervention
  • China import are strong
  • Fonterra lowers its forecast milk price

Downside Pressure

  • Lower oil price reduces affordability in key regions
  • Global trade tensions create uncertainty: US/China, Iran, Turkey and of course Brexit
  • Geo-political concerns on-going: US, Mexico, China, Russia, Iran