World Markets (for Fat’s) are Firming

Our first full day back in the market was primarily spent catching up with partners and discussing the current market dynamics. Although we managed to broker a few deals, it seems most partners are waiting to see what this Tuesday will bring. Many have their eyes on the GDT, as it serves as a good indicator of global demand. From our conversations, it seems that despite growing economic concerns and headwinds, dairy demand remains strong and may lift the global market to new levels in the coming weeks.

Yesterday, we examined the EU and observed a decline in milk production while consumption remains steady. Today, we will focus on the performance of the global market.

Milk Intake: Stable

When looking at milk intake across all major exporters, it appears that global milk collections are quite stable. Milk intake in the US is lagging slightly, New Zealand is trailing last year’s figures, while Australia is performing slightly better. The EU is stable to slightly down, and Argentina has seen a significant decrease. However, the headline numbers seem worse than they actually are when considering milk on a milk solids basis (which is the more important measure).

Demand for Fat is Up!

In recent weeks, the market has clearly shifted into a higher gear. While butter prices in the US had trailed off slightly, they are gaining momentum again, even reaching the highest prices this year for some months. A similar trend is seen in New Zealand, which is currently producing the cheapest butter among the EU, NZ, and US, while Europe is breaking record prices as we speak.

It seems buyers are eager to purchase anything containing fat. Cheese prices in the EU have been moving upward (with prices reaching new highs today), and we see a similar trend in the US. The same can be said for WMP. With prices trending upwards, all fat-containing products are in high demand.

In the EU the fight for cream started early. We hear prices for cream already between € 9200 and € 9350 DAP and it seems availability will be low while demand is just very strong. EU buyers need fat, but the suppliers don't seem to have enough to meet the demand.

Protein: Stable Floor

The protein side of the global market remains stable. Every time the market dips slightly, one of the regions steps in to capture the lower-priced products entering the market. However, prices have remained within a relatively tight range for months and are likely to continue trending within this narrow band. The market appears to have established a solid floor for proteins.

GDT: The Only Way Seems Up

Today's GDT is expected to trend upwards. WMP and SMP futures are pointing up, and although butter futures suggest lower prices, we anticipate the overall butter result to be stable to firm. We might see some weakening in C1 and C2, but the heavily backwardated market should find support with EU and US prices well above those of New Zealand products. We would be surprised to see a negative GDT event.

With futures on SGX, CME, and EEX trading higher for all fat-containing products, we see a global market displaying robust demand. With milk collections stable and expected to remain steady or slightly weaker in some regions, the world should prepare for higher prices. Although SMP prices remain steady, it seems that whey powder and high-value protein products are currently popular among buyers. The world needs dairy; the question is, how much are people willing to pay for it?