What we’re seeing this week

With no GDT event this week, Steve and Jo are talking about the latest quarterly Global Dairy Directions quarterly report being sent to subscribers this week. As COVID vaccination programs rollout – with varying speeds – economic activity is picking up and foodservice sectors are re-opening. What does it all mean for dairy product demand?

The other dynamic at play is the weather, with a delayed EU spring and an outlook for warmer driers than normal likely to keep a lid on milk supply growth. In the US, where milk production has been surging as cow numbers increase the outlook for tighter farm margins is likely to put the brakes on expansion there.

There’s also a look at Modern Dairy Holdings Ltd, the major raw milk supplier to Mengniu in China. It has posted some stunning 2020 financial results that highlight the growing profit margin for the 14 farms. It’s all helped by a large “free kick” on capital costs.

Chart of the week

The inevitable rally in US butter prices is well underway as the oversupply of cream and butterfat eases. CME spot prices rallied past US$4,000/t overnight, to make the gain in March to almost US$800/t. Futures have also improved to similar values for May and June contracts but the forward curve is flat, reflecting a fair amount of uncertainty.

Is the butter market out of the words yet? There are many moving parts. It may be early to assume that with milk supply still growing at better than 2%, overall cheese production well behind normal activity, summer cream usage in ice-cream is a good way off and the dining-out sector is still operating at less than two-thirds capacity. Cream demand is picking up and multiples were reported as being high in Mid-West and Eastern markets last week which is discouraging more butter going into the churn.

Export opportunities are priming bullish sentiment given the gulf in prices for butter in major competitor markets and there are some buyers looking to the US for price relief from the main options – provided the product makes spec. NZ prices are expected to weaken from recent highs but the EU market remains firm with milk supply struggling to get out of the blocks.