Author: Sandro Schulz, Dairy & Pork Analyst, Mintec
Both Whole Milk Powder (WMP) and Skimmed Milk Powder (SMP) prices have declined significantly over the past eight weeks. While WMP declined by 15% to €3,500/mt, SMP prices fell by 16% to €2,400/mt over the same period, as of 26th January. Buying activity from international markets remains limited, with Chinese demand negatively impacted by COVID-19 and increased domestic production.
Buying interest from the Middle East and Muslim countries has been limited as the demand has already been largely covered, according to multiple market sources. This is chiefly as a result of an early Ramadan (late April) this year, with the buy side deciding to cover ahead of time, and will only need to cover small volumes in advance of the religious occasion. The European supply side, however, is starting to feel more pressure, because milk intakes remain above expectations. Furthermore, with the current large gap between farmgate milk prices (€0.60/kg EXW) and spot milk prices (€0.28/kg EXW), producers need to process all milk into commodities such as SMP, WMP, butter or cheese. With supply heavily outweighing demand, storage capacity is starting to run low across the EU, worsening the situation of producers.
This week, Soummam (Algeria’s largest private buyer) returned to the market with a milk powder tender for a combined 10,000 metric tonnes, split evenly between Skimmed Milk Powder and Whole Milk Powder. Offers must be submitted by the end of the day on 26th January. Officially, the latest product delivery is in June, but multiple market sources have indicated that the product is wanted urgently in Algeria and that the target for delivery is April at the latest. WMP volumes are expected to come from New Zealand, as its prices remain quite competitive within the broader global market. For reference, the latest prices from New Zealand were reported at $3,360/mt. The SMP volumes, however, are expected to come from EU traders and processors, as many large processors have already indicated full storage in the previous two weeks. The tender could therefore bring some much-needed relief to the European oversupply situation, but market participants across Europe anticipate that this will only slow down the price collapse on the powders but will fail to change the bearish market sentiment.
For reference, the MBP for Skimmed Milk Powder EXW Europe [Mintec Code: J117] was assessed at €2,400/mt on 26th January, €125/mt on the week. The MBP for Whole Milk Powder spray EXW Europe [Mintec Code: J118] was last assessed on 26th January at €3,500/mt, down 4% week-on-week.
