dairy ingredient outlook · 2020-03-23 · a market in transition a shifting world to butterfat...

Dairy Ingredient Outlook

IDFA –Sweetener Colloquium

Orlando, Florida

February 13, 2018

February 2018 IDFA Sweetener Colloquium 1

Topics


The backstory – milk on the rise

Cheese – the key to milk checks

More cheese – more whey

Demand for butter rolls along

Will milk powder remain low?

Milk & dairy product forecast

Through the looking glass: a market in transition A shifting world to butterfat deficit & protein surplus

• The dairy industry is transitioning from a protein short world to a butterfat deficit land.

• This is creating unique challenges for buyers and sellers alike.

• It is also creating considerable market volatility that has many stumped as to how to manage.

• The situation leaves everyone wondering if and when protein markets rebalance.


It’s simple biology! Only one-third of milk solids are butterfat.


2015

Components Holstein Jersey

Butterfat 3.67% 28.9% 4.81% 34.7%

Protein 3.08% 24.5% 3.65% 25.4%

Other solids 5.76% 46.6% 5.76% 39.9%

Total Solids 12.4% 100% 14.4% 100%

29%

71%

HOLSTEIN

Butterfat Solids nonfat

34%

66%

JERSEY

Butterfat Solids nonfat

Source: Holstein Association USA, Inc.

Butter packs a punch in milk checks Butterfat may provide incentive for more milk in 2018.


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14

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16

($ p

er

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t.)

Bfat Protein Other Solids

• Between 2000 and 2013

butterfat contributed, on

average $5.57/cwt. to the

Class III milk price or 39% of the value.

• From 2014 to present

butterfat has accounted

for 48.5% of the Class III milk price contributing on

average $8.39/cwt.

• This is no longer a U.S.

phenomenon – European

and Oceania dairy

producers are seeing the

same thing. Source: USDA - AMS

EU & NZ milk price outlook improves Current prices are unlikely to slow milk production in 2018


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Jul-1

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ro p

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g)

EU Price for Raw Cow Milk

Source: Eurostat, Fonterra

$3

.85

$3

.87

$7

.59

$4

.75

$6

.10

$7

.60

$6

.08

$5

.84

$8

.40

$4

.40

$3

.90

$6

.12

$6

.40

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17

/1

8 (

F)

(IN

NZ$

PER

KG

. O

F M

ILK

SO

LID

S)

Fonterra Farm Gate Price Dividend

Exporters are expanding milk supply 2017 milk moved ahead of 2016 by mid-year.

7 February 2018 IDFA Sweetener Colloquium

-6

-4

-2

0

2

4

6

8

10

Q1

20

11

Q2

Q3

Q4

Q1

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12

Q2

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13

Q2

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14

Q2

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Q4

Q1

20

15

Q2

Q3 Q4

Q1

20

16

Q2

Q3

Q4

Q1

20

17

Q2

Q3

Q4

(in

bill

ion

po

un

ds)

EU US AU AR/BR NZ

Source: USDA – AMS, Eurostat, Dairy Australia, NCANZ, Dept. of Ag – AR & BR

Topics








More milk – more cheese!

9

• Europe has increase cheese

production 376 million pounds during the first 11 months of 2017

compared to the same period in

2016.

• The United States has expanded

cheese output by 290 million over

a comparable period.

• Australian cheese production is

nearly unchanged.

• Considerable amounts of butterfat

continue to move to cheese

production in 2017.

February 2018 IDFA Sweetener Colloquium

(100)

(80)

(60)

(40)

(20)

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r-1

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Ma

y-1

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(in

mill

ion

po

un

ds)

YOY Change in Cheese Production

(EU, US, AU)

Source: USDA – AMS, Eurostat, Dairy Australia

…but, there is more cheese demand

[CELLRAN

GE]

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GE]

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GE]

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GE]

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GE]

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GE]

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GE]

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GE]

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[CELLRAN

GE]

[CELLRAN

GE]

0.00 1.00 2.00

Canada

Brazil

Belarus

Australia

Mexico

Japan

Argentina

Ukraine

South Korea

Philippines

Taiwan

Billion pounds

Cheese Consumption 2017 (F) 2016


Source: USDA – FAS Dairy Products Annual

More pizza please! Globally pizza is increasing cheese consumption

13432 13747 14357 14967 15605 16063 16409

9351 9742 10255 10886 11629 12530 13811

3646 3883 4163

4428 4663

4893 5097

2010 2011 2012 2013 2014 2015 2016

(NU

MB

ER

OF S

TOR

ES)

WORLDWIDE PIZZA

STORES

Pizza Hut Dominos Papa John's

11

Shanghai, China (2016)

• China’s 2017 cheese imports

were 11% higher than 2016.

• India’s cheese demand is

reportedly expanding at 15-

20% per year.

• Pizza consumption continues to

be a driver of higher cheese

consumption in non-traditional markets.

• Over 5 billion pizzas are sold

each year according to

Statistic Brain.com • Dairy Management Inc.

continues to support efforts to

increase cheese on pizza.

February 2018 IDFA Sweetener Colloquium

Source: Statistica

Butter & cheese drive EU milk production Changes in cheese & butter prices explain one-third of milk.


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(800)

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-

200

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1,000

1,200

Jan

-14

Ap

r-1

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-17

(eu

ro p

er m

etri

c to

n)

(met

ric

ton

s)

EU Chg. in milk based on Dairy Product Prices

YOY Chg EU Cheese 4mo lag

EU SMP 4mo lag EU Butter 4mo lag

2.8%

12.3%

12.7%

37.1%

30.2%

4.9%

3.2%

13.6%

11.5%

38.8%

31.5%

4.8%

EU-28 Milk Utilization

Milk powder

Cream for directconsumption

Drinking milk

Cheese

Butter

Other

2012

2016

Source: Eurostat, European Commission

Topics








More cheese – more whey Higher cheese output is upping whey production


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1

2

3

4

5

6

2012 2013 2014 2015 2016

(in

bill

ion

po

un

ds)

EU, US & AU Whey & Derivatives

Production

EU US AU

Whey

62%

WPC

31%

WPI

7%

Whey

67%

WPC

29%

WPI

4%

2012 & 2016 U.S. Whey

Production

2012

2016

Source: USDA, Eurostat, Dairy Australia

China’s demand for whey is robust China’s whey imports drive market price.


35

,79

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(in

me

tric

to

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China’s Infant Formula Imports 2

11

,79

6

49

5,1

61

52

8,7

32

-

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600,000

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China's Whey Imports

Source: GTIS

U.S. Production is Outpacing Demand Near-term, new capacity can weigh on price


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JAN MAR MAY JUL SEP NOV

(in

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ds)

U.S. Domestic WPC

Commercial Disappearance

2015 2016 2017

2017 v. 2016 -14.9% 0

2

4

6

8

10

12

JAN MAR MAY JUL SEP NOV

(mill

ion

s o

f p

ou

nd

s)

U.S. Domestic WPI

Commercial Disappearance

2015 2016 2017

2017 v. 2016 -1.5%

Source: USDA

Topics








What caused butter demand to soar?

[CELLRANGE]

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(pe

r c

ap

ita

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r ye

ar)


Butter consumption rising As margarine consumption is falling.


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U.S. Butter vs. Margarine Per Capita Consumption

Butter Margarine

Source: USDA ERS

Small consumption gains add up Modest increases are adding to up a lot of butter.

• The United States per capita consumption of butter accounted for an additional 87.9 million pounds of butter from 2012 to 2016. • Over that same time, U.S. butter

production fell 20 million pounds. • That suggests that trade can

have an impact on U.S. butter prices.

• Europe’s per capita consumption accounted for 293.4 million pounds more butter over the same time horizon. Europe’s butter output gained at similar levels over the same time frame.


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2012 2013 2014 2015 2016 2017

(po

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Per Capita Butter Consumption

EU28 US

Source: USDA (ERS), European Commission

Butter production is unchanged Despite high prices, butter production remains flat in US and EU.


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U.S. Butter Production

2015 2016 2017

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EU Butter Production

2015 2016 2017

EU butter

is 0.5% less

than 2016

U.S. butter

is 0.5%

more than

2016

Source: USDA, Eurostat

Topics








High butter, lower NDM/SMP prices Historically high butter prices could put a lid on NDM/SMP.


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$0.5000

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U.S. Butter and NDM Prices

CME Butter NDPSR (NASS) NDM

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EU Butter and SMP Prices

EU Butter EU SMP

Source: USDA – AMS (Dairy Market News)

Global stockpiles remain high Large stockpiles could keep pressure on prices

• At the start of the year, the European Commission modified the intervention program to migrate from a guaranteed price to a tender-based system. The objective – to buy less powder, if any, in 2018.

• U.S. manufacturers’ stocks are rising also.

• The question is whether the selling of intervention stocks affects whey or nonfat dry milk/skim milk powder prices.


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ds)

Global NDM/SMP Stockpiles

US Mfg Stocks EU Intervention Stocks

EU PSA Stocks

Source: USDA, European Comission

Could oil prices rise in 2018? Higher oil prices are increasing purchasing power.

Top NDM Importers in 2016

Rank Country Oil Nat. Gas

1 Mexico 12 16

2 Philippines

3 China 6 7

4 Indonesia 22 11

5 Russia 1 2

6 Malaysia 25 14

7 Algeria 18 9

9 Egypt 28 15

10 Thailand 33 25

11 Singapore

12 Brazil 10 34


$25

$45

$65

$85

$105

$125

$145

$165

$0.50

$0.70

$0.90

$1.10

$1.30

$1.50

$1.70

$1.90

$2.10

$2.30

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NDPSR NDM vs. Cushing Oil

Prices

NDPSR NDM Cushing

Source: USDA, EIA

Topics








Macro economic impacts on dairy


NAFTA Negotiations

Volatile Equity

Markets

China’s Demand

New Zealand Weather

U.S. Immigration

Policy

Each of these could impact 2018 dairy markets

Wrap-up – pulling it all together Market volatility is unlikely to go away in 2018.

28 February 2018 IDFA Sweetener Colloquium

• Demand remains positive and is likely to continue to expand into 2018.

• But, given current milk prices there is a good chance milk could outpace demand at the start of 2018 and that could depress prices.

• With a tight butterfat situation globally, the market could struggle to find balance causing the latest bouts of volatility to persist through 2018.

• The United States is actively adding cheese capacity that has started and will continue to come on line through early 2018 with larger growth planned in the near future. Cheese price will rely on exports and higher domestic consumption. Additionally, more cheese will create more whey products.

• U.S. farm margins are not as strong as indicated by milk-over-feed ratios – that could have an impact late 2018.

Cheese & whey outlook


$1.150

$1.250

$1.350

$1.450

$1.550

$1.650

$1.750

$1.850

$1.950

$2.050

$2.150

Feb

-18

May

-18

Au

g-1

8

No

v-1

8

Feb

-19

May

-19

Au

g-1

9

No

v-1

9

(USD

$ p

er p

ou

nd

)

Cheddar Blocks Forecast

High/Low Cheese Fcst Futures

$0.2000

$0.2500

$0.3000

$0.3500

$0.4000

$0.4500

$0.5000

Feb

-18

May

-18

Au

g-1

8

No

v-1

8

Feb

-19

May

-19

Au

g-1

9

No

v-1

9

Feb

-20

(USD

$ p

er p

ou

nd

)

NDPSR Whey Forecast

High/Low Whey Fcst Futures

Butter & NDM outlook


$1.7500

$1.9500

$2.1500

$2.3500

$2.5500

$2.7500

$2.9500

Feb

-18

May

-18

Au

g-1

8

No

v-1

8

Feb

-19

May

-19

Au

g-1

9

No

v-1

9

(USD

$ p

er p

ou

nd

)

Butter Forecast

High/Low Butter Fcst Futures

$0.5000

$0.6000

$0.7000

$0.8000

$0.9000

$1.0000

$1.1000

$1.2000

$1.3000

Feb

-18

May

-18

Au

g-1

8

No

v-1

8

Feb

-19

May

-19

Au

g-1

9

No

v-1

9

(USD

$ p

er p

ou

nd

)

Non-fat Dry Milk Forecast

High/Low NDM Fcst Futures

Class III & IV milk outlook


$12.00

$13.00

$14.00

$15.00

$16.00

$17.00

$18.00

$19.00

$20.00

Feb

-18

May

-18

Au

g-1

8

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v-1

8

Feb

-19

May

-19

Au

g-1

9

No

v-1

9

(USD

$ p

er p

ou

nd

)

Class III Milk Forecast

High/Low Class III Fcst Futures

$11.00

$12.00

$13.00

$14.00

$15.00

$16.00

$17.00

$18.00

$19.00

$20.00

Feb

-18

May

-18

Au

g-1

8

No

v-1

8

Feb

-19

May

-19

Au

g-1

9

No

v-1

9

(USD

$ p

er p

ou

nd

)

Class IV Milk Forecast

High/Low Class IV Fcst Futures

…and all of the things that make forecasting an exercise in futility

• Weather or natural disaster

• Geopolitical issues

• Supply outages

• Free trade agreements

• Significant changes in domestic demand

• Rising stockpiles of dairy products

• Substantial currency fluctuations

• Deteriorating farm level returns

• Herd health issue

• Significant slowdown/improvement in the global economy



Thank you

dairy ingredient outlook · 2020-03-23 · a market in transition a shifting world to butterfat...

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