perspective - nzmp · declines in new zealand and australia. monthly production eased in the us and...
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PERSPECTIVEJune 2019
The latest insights into global dairy markets
Your regular global overview of the dairy industry along with trends in milk production, commodity prices and dairy trade.
Welcome back to Perspective!June 2019
In this digital-age, we are witnessing food trends evolve faster and further. Innova reports that over half of Chinese consumers share photos of their food online weekly. The way consumers share their ideas and experiences triggers a viral culture, with a whole demographic demanding the ‘latest craze’ in the time it takes to post to Instagram. From charcoal ice-cream & cronuts, to bubble tea & Nootropics – the possibilities are endless.
The global connection and accessibility technology has given us seems to have triggered a new era some have dubbed the ‘age of the explorer’. This has highlighted the exciting ‘Adventurous Consumption’ trend, where culinary borders are blurred and eating has become a symbolism of the experiences we are having rather than just a showcase of what we are consuming.
This month’s feature writer is Lu Ann Williams, director of innovation for Innova. Williams explores the trend of Adventurous Consumption and what this looks like in reality.
Four key movements for the month:
1. Production – Production growth in the US is easing, with EU holding at current levels. There were substantial production declines in New Zealand and Australia.
2. Exports – New Zealand and EU export growth endures, whilst US and Australian exports decline.
3. Imports – Latin America and Middle East & Africa are declining. The strong growth of imports into Asia and China continue.
4. Prices – GDT auction event 237 saw a drop across most of the listed products, resulting in the GDT price index down -3.4% to USD $3,423/MT. The largest decline coming from Cheddar which dropped -14% to USD $3,950/MT. Lactose and Rennet Casein, however, increased +0.4% and +4.2% respectively.
If you have suggestions for topics you would like to read about in Perspective, or any other general feedback, we would love to hear from you. You can contact us at [email protected] or through your account manager.
Kind regards,
Alex Turnbull Director, NZMP Marketing
In this issueFeature article 4
Global production 6
Fonterra milk collection 7
Global exports 8
Global imports 9
Tracking the global dairy market 10
Global indicators 11
Commodity prices 12
GDT results 13
Industry commentary 14
Glossary 18
3
FEATURE ARTICLE
Lu Ann Williams Director of Innovation, Innova Market Insights
Lu Ann Williams is the Director of Innovation at Innova Market Insights, a global company that provides market research services including the Innova Database. With over 20 years’ experience in the food industry, Lu Ann is a trend expert and frequent public speaker at events worldwide.
She works with global clients and leads a team of analysts focused on a wide range of projects in marketing and R&D primarily for food and beverage manufacturers, ingredient suppliers and packaging suppliers.
Discovery:Catering to “The Adventurous Consumer” is key
As we are swept up by the growing food discovery online and in broadcast programming, sensory explorers are uncovering more exotic food options. We have all become food critics who are demanding flavor and textural insights and the food industry is responding with ever more choice and gems to discover and pass on. There is a focus on heightened sensory delivery, often combined with an element of the unexpected.
The age of the explorer
We are entering the “age of the explorer,” where an adventurous consumer is coming to the fore and demanding new flavorful experiences with a true story behind them. Globalization is sparking the consumer’s curiosity to discover new food and drinks. The connected world has led consumers of all ages to become more knowledgeable of other cultures. This is resulting in brands needing to bring more variety to the market. Heightening sensory delivery, storytelling and novelty are all ways for brands to engage with more adventurous, enjoyment-seeking consumers.
The rise of an “adventurous” consumer is backed up by new consumer data.
Innova Market Insights consumer research (2018) indicates
that 7 in 10 US consumers “love to discover new flavors,”
with similar numbers of respondents reported in China and the UK. Market researchers also find that 28% of US, UK and Chinese consumers have experienced a shift in their tastes towards more exotic or adventurous flavors in snacks. This market dynamic has contributed to a 17% average annual growth in the use of a “discovery” claim from 2014-2018 (Global, CAGR).
These products feature claims that include the use of words such as
“discover,” “explore,” “uncover,” “unveil” and “unravel.”
NZMP PERSPECTIVE JUNE 20194
The blurring of culinary borders
Millennials are an important consumer group but ‘The Adventurous Consumer’ trend is broader than just that. If you take Japanese restaurants, for example, they are often full of children. In the past, people made fun of eating raw fish, kimchi was a punchline of many jokes, but now there are so many foods and flavors which have gone much more mainstream than we had ever expected.
At the same time, rising consumer interest in other cultures has resulted
in a 13% average annual growth in global food & beverage launches
with ethnic flavors* over the 2014-2018 period.
Some recent examples of trending ethnic flavors in NPD (CAGR, 2014-2018, Global) include:
• 9% average annual growth in new food & beverages launches with Indian flavors.
• 15% average annual growth in new food & beverage launches with East Asian (Chinese, Japanese, Korean) flavors.
• Strong average annual growth in food & beverage launches with Mediterranean flavors (+19%) and Middle Eastern flavors (+23%).
Targeting increasingly adventurous consumers, set on new discoveries and experiences, will be key to developments in the food and beverage industry in 2019.
*Ethnic flavors =flavors with name of country/region of origin in brand/product name
Disclaimer: The views expressed above are the opinion of the author, not those of Fonterra, and Fonterra is not responsible for any decisions taken in reliance on the same.
Learn more: Click here to read NZMP Fast Facts, Adventurous Consumption
Adventurous Consumption Involves:
Discovering Richer Experiences: Engagement with consumers through heightened sensory delivery, storytelling and novelty – what’s new and when can I try it?
Excitement: Elements of surprise and unexpected flavor blends add excitement to the food experience.
Global Inspiration: The exploration of ethnic and exotic flavors gain traction as the borders between culinary creations blur. From Asian to Middle Eastern, Western, Indian and more, consumers are enjoying meals from all over the world.
Authenticity: Provenance shines through in the authenticity of the selection that ultimately makes its way onto our plates – what is the story behind the consumption experience?
Variety: Whether you have a regimented weekly meal plan or an ad-hoc style of cooking – consumers enjoy occasional treats and variety in their nutritional sources.
Feast for the eyes: As the digital age has grown, so too has the desire to share our experiences online – and what we eat is no exception. Visually engaging meals are a sure-fire way to gain social media traction for any food & beverage manufacturer e.g. black charcoal ice-cream.
5
Significant monthly production declines in New Zealand and Australia. Monthly production eased in the US and holding at current levels in EU
1. New Zealand production for April 2019 is an estimate based on Fonterra’s actual milk collections for April 2019 and estimates for other New Zealand processors.
GLOBAL PRODUCTION
EUROPEAN UNION
0%Production change for the 12 months to March 2019
Production for the 12 months to March was up marginally compared to the same period last year.
EU milk production increased 1% in March compared to the same period last year.
Strong growth continued in the UK but it exports very little product outside of the EU. Ireland growth continued with March up 11% compared to the same period last year.
Key exporting countries where production declined were Austria, France and The Netherlands, at 4%, 1% and 2%, respectively.
NEW ZEALAND
+2%Production change for the 12 months to April 2019
New Zealand milk production for the 12 months to April was 2% higher than last year.
New Zealand milk production¹ was down 10% in April compared to the same period last year.
Dry conditions continued across most of the North Island and parts of the South Island. Soil moisture was below normal for most of the North Island and a large part of the South Island.
UNITED STATES
+1%Production change for the 12 months to April 2019
Milk production for the 12 months to April was just under 1% higher compared to the same period last year.
US milk production increased 0.2% in April, compared to the same period last year.
Milk per cow continues to increase but the continued drop in cow numbers continues to limit growth.
Low profitability is leading to an increase in culling which is expected to continue to impact growth over the next few months.
AUSTRALIAN COLLECTION
-5%Production change for the 12 months to March 2019
Production for the 12 months to March was down 5% on the previous 12 months.
Australia milk production decreased 10% in March compared to the same period last year. This is the lowest March production in the last 20 years.
Continued drought conditions and high input costs continue to put pressure on Australian milk production because of reduced supplemental feeding, increased cow cull rates and farm exits.
NZMP PERSPECTIVE JUNE 20196
FONTERRA MILK COLLECTION 2018/19 SEASON
Sources: Fonterra Global Dairy Update, November 2018
FONTERRA MILK COLLECTION
AUSTRALIAN COLLECTION
-31%Decrease for April 2019 compared to April 2018
-19%Season to date 1 July to 30 April
NEW ZEALAND COLLECTION
-9%Decrease for April 2019 compared to April 2018
+1%Season to date 1 June to 30 April
2018/19
2017/18
2016/17
Fonterra’s share of monthly collection continues to reduce due to adverse on-farm and weather conditions, increasing cull cow rates, retirements in key regions, cost of inputs and milk collection losses in a highly competitive market.
Dairy Australia continue to forecast a milk production decline of between 7% and 9% for the season.
Drier than average conditions continued into April for some regions, affecting volumes.
Collection for the season to date reached 1,454 million kgMS, up 1%. Strong spring volumes are now being offset by decreases for February, March and April compared to the same months last season.
7
Sources: Data from Global Trade Information Services, US Dairy Export Council, EU Milk Market Observatory, Dairy Australia, High Ground Dairy and Eucolait
Exports from New Zealand and the EU continue to grow. Australia and US monthly exports decline
GLOBAL EXPORTS
AUSTRALIA
+5%Export change for the 12 months to March 2019
Exports for the 12 months to March were up 5%, or 36,600 MT, on the previous comparable period.
Infant formula, fluid milk products, and whey powder make up most of the current growth in Australian exports.
Australia dairy exports decreased by 3%, or 2,000 MT, in March compared to the same period last year. This decline was due to WMP, SMP, and cheese, down a combined 8,200 MT. This was offset by an increase in infant formula and fluid milk products, up 6,000 MT.
EUROPEAN UNION
+1%Export change for the 12 months to February 2019
Exports for the 12 months to February were up 1%, or 60,100 MT, on the previous comparable period. SMP, lactose and infant formula were up a combined 150,400 MT. This was largely offset by a decline in WMP, fluid milk products and butter.
EU dairy exports increased by 5%, or 22,800 MT, in February compared to the same period last year. This was primarily driven by SMP, and fluid milk products up a combined 30,600 MT. This was offset by declines in whey powder and WMP.
UNITED STATES
+3%Export change for the 12 months to March 2019
Exports for the 12 months to March 2019 were up 3%, or 68,300 MT, on the previous comparable period.
Most products remain ahead of the previous comparable period but whey powder and WPC are down. The US/China trade dispute and African Swine flu impacting the China hog industry has led to a downturn in whey imports by China.
US dairy exports declined 10%, or 22,800 MT, in March compared to the same period last year. This was primarily driven by base commodities of SMP, whey powder, lactose, WMP and WPC, down a combined 25,200 MT. This was partially offset by increases in cheese of 3,700 MT.
NEW ZEALAND
+5%Export change for the 12 months to March 2019
Exports for the 12 months to March were up 5%, or 176,000 MT, on the previous comparable period. This was primarily driven by WMP, fluid milk products, and AMF, up a combined 187,000 MT and largely offset by SMP.
Total New Zealand dairy exports increased by 27%, or 75,000 MT, in March compared to the same period last year. This was primarily driven by WMP, fluid milk products, and cheese, up 63,000 MT. Other than a slight decline in butter and casein, all other products were up for the month.
NZMP PERSPECTIVE JUNE 20198
Imports into Asia and China show strong growth. Latin America and Middle East & Africa down
GLOBAL IMPORTS
ASIA
+7%Import change for the 12 months to February 2019
Imports for the 12 months to February were up 7%, or 309,400 MT, compared to the same period the previous year. This growth continues to be driven by fluid milk products, WMP, SMP, lactose, cultured products, cheese, and infant formula up a combined 295,200 MT.
The import market remains in a solid growth phase.
Asia (excluding China) dairy import volumes¹ increased 10%, or 37,500 MT, in February compared to the same period last year. SMP, fluid milk products, cheese and WMP were up but offset by declines in whey powder, ice cream and other powders.
CHINA
+8%Import change for the 12 months to March 2019
Imports for the 12 months to March were up 8%, or 219,300 MT, compared to the same period last year.
Strong demand out of China continued with imports across all key categories, notably WMP, SMP, infant formula and lactose, which were up a combined 202,200 MT.
China dairy import volumes increased 11%, or 22,700 MT, in March compared to the same period last year. This was driven by increases in WMP and fluid milk products up a combined 35,300 MT but partially offset by whey powder which was down 13,400 MT.
RUSSIA
-13%Import change for the 12 months to March 2019
Imports for the 12 months to March 2019 were down -13.3% or -160,852 MT compared to the same period the previous year. This was mainly driven by Fluid and fresh dairy, Whey Powder, SMP, Cultured Products and WMP being down a combined -242,098 MT. Offset by Cheese and Butter being up 78,375 MT.
Russia import volumes were down -11.7% or -10,836 MT for March 2019 compared to the same month the previous year.
MIDDLE EAST & AFRICA
-7%Import change for the 12 months to February 2019
Imports for the 12 months to February 2019 were down 7%, or 306,700 MT, compared to the same period the previous year. The reduction has been driven by cheese, fluid milk products, SMP, butter and other powders down a combined 307,200 MT.
Middle East and Africa dairy import volumes¹ decreased 11%, or 39,300 MT in February 2019 compared to the same period last year. Small growth in MPC was offset by declines in most other product, principally cheese, SMP, infant formula and butter down a combined 30,500 MT.
1. Estimates are included for those countries that have not reported data. Sources: Data from Global Trade Information Services; EU Milk Market Observatory; FAO; Highground Trading Group
LATIN AMERICA
+5%Import change for the 12 months to February 2019
Imports for the 12 months to February 2019 were up 5%, or 90,900 MT, compared to the same period the previous year. SMP, fluid milk products, WMP, infant formula and MPC were up a combined 94,200 MT offset by declines in whey powder, other powders.
Latin America dairy import volumes¹ decreased 1%, or 1,600 MT, in February compared to the same period last year. Declines in SMP, infant formula and whey powder of a combined 9,500 MT, were largely offset by fluid milk products, WMP, cheese and WPC.
.3
9
Global Dairy MarketThe charts on the right illustrate the year-on-year changes in imports, exports and production for a range of countries that are important players in global dairy trade.
The absolute size of the bars represent the change in imports, exports or production, relative to the same period the previous year.
Averages are shown where data is complete for the regions presented.
TRACKING THE GLOBAL DAIRY MARKET
Sources: Government milk production statistics/GTIS trade data/Fonterra analysis
PRODUCTION
EXPORTS
IMPORTS
450
300
150
0
-300
-150
NEW ZEALAND EU27 UNITED STATES AUSTRALIA AVERAGE
LIQ
UID
MIL
K (
M L
ITR
ES
)
SEP ‘18 OCT ‘18 NOV ‘18 DEC ‘18 JAN ‘19 FEB ‘19 MAR ‘19MAY ‘18 APR ‘19JUN ‘18 JUL ‘18 AUG ‘18
NEW ZEALAND EU27 UNITED STATES AUSTRALIA AVERAGE
MT
(00
0s)
0
40
80
120
-120
-80
-40
JUN ‘18 JUL ‘18 AUG ‘18 SEP ‘18 OCT ‘18 NOV ‘18 DEC ‘18 JAN ‘19 FEB ‘19APR ‘18 MAR ‘19MAY ‘18
ASIA CHINA MIDDLE EAST & AFRICA LATIN AMERICA RUSSIA AVERAGE
MT
(00
0s)
JUN ‘18 JUL ‘18 AUG ‘18 SEP ‘18 OCT ‘18 NOV ‘18 DEC ‘18 JAN ‘19 FEB ‘19APR ‘18 MAR ‘19MAY ‘18
-80
-120
-160
-40
0
40
80
120
160
NZMP PERSPECTIVE JUNE 201910
WeatherIn New Zealand, April was wet and cool for inland parts of the South Island, variable elsewhere. Across most of the North Island, temperatures were typical for April, the southern and western parts having a wet month while the remaining areas were drier than normal. Australia has received recent rain in the Southeast, but remains too dry elsewhere.
In Europe, there has been additional rain in the east, with hot, dry weather in Spain, France and southeastern England. The Middle East has been hot and dry, with South Asia experiencing pre-monsoon showers. Unseasonable warmth and dryness continues to be a relatively common theme across significant parts of the globe.
Source: World Agricultural Weather Highlights USDA oCOE, Fonterra Ingredients Australia
EconomicComposite leading indicators (CLIs) continue to point towards easing growth momentum in the most major economies.
Easing growth momentum remains the assessment for the United States, Japan, Canada, the United Kingdom and the euro area as a whole, including Germany and Italy. France however now anticipates stable growth momentum.
China, India and Russia are reflecting stable growth momentum, while in Brazil the CLI continues to point to growth gaining momentum.
Source: OECD
Food PriceThe FAO Food Price Index (FFPI) rose in April 2019 to 170 points, 1.5% higher than in March and marking its highest values since June 2018. Every subindex other than cereal firmed in April, led by dairy and meat, with lesser rises in vegetable oils and sugar.
The Dairy Price Index in April averaged 215 points, up 10.7 points from March, for a fourth consecutive monthly increase. This is a continued trend, attributed to the increased demand ahead of predicted seasonal tightening of exports available from Oceania, reinforced by current dry weather conditions.
Source: FAO
ConsumerThe EIU has lowered its outlook for global growth to 2.6% from 2.7%, primarily due to a more uncertain short-term outlook for emerging markets, including Argentina, Turkey & South Africa. Recent indicators in the US, EU and China have been stronger than previously expected, although slowing is still expected in 2019-2020. There is a continued expectation of a limited trade deal between China and the US, but risks of a breakdown in negotiations still exist.
Source: Economist Intelligence Unit
GLOBAL INDICATORS
11
Actuals
GDT Fonterra Dutch Dairy Board USDA Oceania
USDA NASS CME Spot EU Commission
Forecasts
NZX Futures CME Futures
Rabobank Oceania
May WMP price changes were down across the board with Dutch Dairy Board (DDB) down -2.1% to USD 3,350/MT, USDA Oceania down -2.8% to USD 3,231/MT, and GDT price dropping by -2.7 % to USD 3,264/MT.
Futures and forecasts for the next six-months are tracking lower than the current market. NZX Futures reduce their forecast average by -3.6% to a 6-month average of USD 3,133/MT and Rabobank Oceania average forecast holding steady at USD 2,933/MT.
May butter prices were mixed. GDT and USDA Oceania both stayed flat at USD 5,448/MT and 5,631/MT respectively. Whilst we saw a +3.2% upswing on CME Spot to USD 5,151/MT, and DDB saw a -1.7% drop to USD 4,570/MT.
Average futures and forecasts for the next six-month period are relatively unchanged with CME Futures holding their forecast average at USD 5,291/MT and Rabobank Oceania average prices steady at USD 4,225/MT.
The majority of Cheddar Cheese prices increased during May, with the exception of the EU commission which dropped a further -2.7% to USD 3,553/MT. GDT increased +6.2% to USD 4,543/MT, USDA Oceania increased +10.3% to USD 4,731/MT and CME spot price is up +1.2% to USD 3,704/MT.
Average futures and forecasts for the next six-month period are relatively unchanged with CME Futures holding their forecast average at USD 3,864/MT and Rabobank Oceania average prices steady at USD 3,633/MT.
All SMP prices for May increased, we can see two clear price group levels seemingly determined by hemispheres. Dutch Dairy Board (DDB) had the largest growth of +6.4% to USD 2,195/MT. USDA NASS is up +4.6% to USD 2,223/MT. USDA Oceania is up +0.5% to USD 2,563/MT. GDT saw an uplift of +1.7% to USD 2,560/MT.
Forecast and futures show a predicted tightening of the SMP prices, with the average 6-month price forecast between USD 2,333/MT and USD 2,514/MT.
Source: https://www.globaldairytrade.info/en/product-results/
COMMODITY PRICES
WMP
$1500
$2000
$2500
$3000
$3500
$4000
Jan
19
Feb
19
Ma
r 19
Ap
r 19
Jul 1
9
Aug
19
Sep
19
Nov
19
Nov
18
Dec
18
Ma
y 19
Jun
19
Oct
19
SMP
$1500
$2000
$2500
$3000
$3500
$4000
Jan
19
Feb
19
Ma
r 19
Ap
r 19
Jul 1
9
Aug
19
Sep
19
Nov
19
Nov
18
Dec
18
Ma
y 19
Jun
19
Oct
19
BUTTER
$1500
$2000
$2500
$3000
$3500
$4000
$4500
$5000
$5500
$6000
Jan
19
Feb
19
Ma
r 19
Ap
r 19
Jul 1
9
Aug
19
Sep
19
Oct
19
Nov
19
Nov
18
Dec
18
Ma
y 19
Jun
19
CHEESE
$1500
$2500
$3500
$4500
$5500
$6500
$7500
Jan
19
Feb
19
Ma
r 19
Ap
r 19
Jul 1
9
Aug
19
Sep
19
Oct
19
Nov
19
Nov
18
Ma
y 19
Jun
19
Dec
18
NZMP PERSPECTIVE JUNE 201912
GDT SALES BY DESTINATION
TRADING EVENT 236
GDT Results
Financial Year to DateAuction 236
North Asia (including China)
South East Asia
Middle East and Africa
Latin America
Other
The New Zealand dollar weakened further in April as inflation data increased the likelihood of a reduction in interest rates by the Reserve Bank of New Zealand.
Source: https://www.globaldairytrade.info/en/product-results/
GDT RESULTS
TRADING EVENT 237
-3.4%usd3,423
Change in GDT Price Index from previous event Average price (USD/MT, FAS)
WMP AMF SMP BUTTER
-1.5% -5.7% -4.0% -10.3%
$3,138 $5,752 $2,436 $4,805
RENNET CASEIN CHEDDAR LACTOSE BMP
+4.2% -14.0% +0.4% -10.1%
$7,201 $3,950 $897 $2,807
Dairy commodity prices and New Zealand dollar trend
The next trading event will be held on 18 June 2019. Visit www.globaldairytrade.info for more information.
GDT PRICE INDEX NZD/USD SPOT RATE
PRIC
E IN
DEX
14,785 MT
585,850MT
13
USDA, Dairy OutlookPublished May 2019
INDUSTRY COMMENTARY
Recent developments
The milk production forecast for 2019 has been lowered to 218.7 billion pounds, 0.8 billion less than last month’s forecast and only 0.5 percent above 2018. Due to recent increases in most dairy product prices, lower expected milk production, and higher expected exports, the 2019 all-milk price forecast has been raised to $18.05 per cwt. For 2020, the forecast is 222.7 billion pounds, an increase of 1.6 percent from 2019 with an all-milk price forecast for 2020 of $18.80 per cwt. If realized, this would be the highest all-milk price since 2014.
NZMP PERSPECTIVE JUNE 201914
From the week ending March 30 to the week ending May 4, movement of dairy product prices reported in the USDA National Dairy Products Sales Report (NDPSR) were mixed. Cheddar cheese saw the largest changes, with 40-pound blocks and 500-pound barrels gaining 9.4 cents and 12.4 cents per pound, respectively. Nonfat dry milk price (NDM) shifted by 4.5 cents per pound, while butter and dry whey prices per pound fell by 4.5 cents and 1.8 cents, respectively.
USDA, National Agricultural Statistics Service (NASS) estimated that U.S. milk production was 18.913 billion pounds in March, down 0.4 percent from March 2018. This is the first monthly year-over-year decline in average daily milk production since January 2016.
On a milk-fat milk-equivalent basis, exports grew in February and March. In the months of January through March, quantities were 686 million, 807 million, and 858 million pounds in each consecutive month. Likewise, on a skim-solids milk-equivalent basis, exports grew month over month, with quantities of 3.062 billion, 3.161 billion, and 3,719 billion pounds in January through March. Notably, cheese exports were 62 million, 72 million, and 82 million pounds in the consecutive months, while lactose exports fell from 64 million pounds in January to 60 million in February but then grew to 78 million pounds in March.
First-quarter imports on a milk-fat basis were 1.4 billion pounds, 14.6 percent above the first quarter of 2018. On a skim-solids basis, first-quarter imports were 1.3 million pounds, 8.8 percent below the first quarter of 2018. Imports of milk protein products (casein, caseinate, and milk protein concentrate) totaled 52 million pounds in the first quarter of 2019, 16 million below the first quarter of 2018.
U.S domestic use was relatively strong - on a milk-fat basis, it was 51.0 billion pounds, 1.5 percent higher than the first quarter of 2018. On a skim-solids basis, it was 45.4 billion pounds, 2.1 percent higher than the first quarter of 2018. This was the second consecutive quarter with solid growth in domestic use, with the fourth quarter of 2018 being up year over year by 2.0 percent on a milk-fat basis and 2.5 percent on a skim-solids basis. March ending stocks on a milkfat basis were 16.1 billion pounds, 0.6 percent below March 2018. On a skim-solids basis, March ending stocks were 10.9 billion pounds, 4.5 percent below March 2018. While butter and NDM stocks were below March 2018 by 1.4 percent and 2.9 percent, respectively, aggregate cheese stocks were 4.3 percent above the previous year.
Source: USDA15
Dairy forecasts for 2019The size of the milking herd was lower than expected in March; lowering the projection for the average 2019 milk cow inventory 15,000 head to 9.345 million. The milk per cow forecast for the year is now 23,400 pounds, a decline of 55 pounds from last month. Consequently, milk production for 2019 is now forecast at 218.7 billion pounds, a drop of 0.8 billion pounds from previous estimates.
Forecast domestic use on a milk-fat basis for 2019 is now 214.6 billion pounds, 1 billion pounds lower than last month’s forecast, due to higher than expected prices. At the same time, the export forecast for the year has been raised 0.4 billion pounds to 10.2 billion, due to higher expectations for cheese exports. Imports on a milk-fat basis are forecast at 6.5 billion pounds, the same as last month. Ending stocks on a milk-fat basis for 2019 are now forecast at 13.0 billion pounds, 0.4 billion pounds lower than the last forecast, caused by lower milk production and higher exports.
The 2019 domestic use forecast on a skim-solids basis is now 180.5 billion pounds for the year, 1.0 billion pounds lower than previously. Exports on a skim-solids basis are forecast 0.4 billion pounds higher than last month’s forecast, at 42.6 billion pounds, based on higher expected cheese and lactose shipments. Imports are now forecast at
5.1 billion pounds for the year, a drop of 0.2 billion pounds. With lower than expected ending stocks for the first quarter of 2019 and lower expected milk production, the ending stock forecast for 2019 on a skim-solids basis has dropped to 10.2 billion pounds.
With recent strength in cheese prices and higher expected cheese exports, the cheddar cheese price forecast has been raised to $1.650 per pound for the year. Dry whey price forecast is unchanged at $0.395. Butter prices will continue to trade within a relatively small range in 2019, currently around $2.290 per pound. With higher NDM prices in recent weeks and flagging production in Europe and Oceania, the NDM price forecast for 2019 has risen to $1.005 per pound.
The Class III price forecast for 2019 has been raised to $16.05 per cwt due to higher expected cheese prices. The higher forecast for the 2019 NDM price has resulted in a higher Class IV price forecast of $16.20 per cwt. The 2019 all-milk price has been raised to $18.05 per cwt.
INDUSTRY COMMENTARY
NZMP PERSPECTIVE JUNE 201916
Blimling reports that global milk supplies are on the verge of contracting, with weather opposing growth, and that beyond the biggest regions, milk production is stalling in South America. Cheese supplies have tightened up, as lighter milk production and less cheap spot milk availability have their effect. Buyers appear to have been holding out for lower prices, hoping for events to send the market lower while now time is running out. They believe with open interest in futures running 16% behind prior years, buyers may have to spend the next weeks scrambling. They foresee less fresh cheese supply causing a greater opportunity for near term higher pricing, but that this may also temper demand, especially for US exports, which could smother upside potential.
Blimling reports that butter continues much the same, with prices tracking between $2.20 and $2.30, with potential for the range to narrow towards the top end in the near term, due to lighter availability of cheap cream.
As Blimling reports, NDM/SMP prices are back above $1, positing that it’s the simple less supply/more demand equation at work. They see lighter milk production across the globe, including the East of the US, with dry conditions globally having an effect. China is a positive force on the buy-side, picking up 28% more SMP than 2018. They see the recent gains at GDT auctions likely continue into the second quarter, although they are unable to pinpoint exactly why China’s demand for SMP has picked up. Their conclusion is the market will hold above $1, with buyer hesitation tempering the upside.
In dry whey, multiple factors are at play, as they put it ‘Trade wars, African swine fever, price competition’ is making US whey exports suffer. They believe weaker export demand will continue to weigh on spot values, NDPSR will remain slow to reflect the weaker prices, but strength in high protein whey should help to layer in a bottom.
Blimling, Forecast UpdatePublished May 1, 2019
Source: Blimling17
AMF Anhydrous Milk Fat
BMP Butter Milk Powder
CME Chicago Mercantile Exchange
DDB Dutch Dairy Board
EIU Economist Intelligence Unit
FAO United Nations Food and Agriculture Organisation
Farmgate Milk Price The price for milk supplied in New Zealand to Fonterra by farmer shareholders
Fluid and Fresh Dairy The Fonterra grouping of fluid milk products (skim milk, whole milk and cream pasteurised or UHT processed), concentrated milk products (evaporated milk and sweetened condensed milk) and yoghurt
FTA Free Trade Agreement
GDI Global Dairy Intelligence group, Fonterra Cooperative Group Limited. GDI provides insights to Fonterra management based on a model of the global dairy market developed by GDI and populated with publicly available data. The model outputs referenced in this report do not reflect Fonterra’s non-public production or sales data
GDP Gross Domestic Product
GDT Global Dairy Trade auction platform
GDT Price Index is an index that provides a measure of the weighted average percentage change in the movement in price of all products sold on GDT. This provides a simple measure of changes in dairy price between trading events
IMF International Monetary Fund
Informa Informa Economics Inc., Dairy Group, Global Dairy Market Report
LME Liquid Milk Equivalent
MAT Moving Annual Total (this is data averaged across the 12 month period)
MEA Middle East and Africa
NDM Non-fat Dry Milk
NZX NZ Stock Exchange
OECD Organisation for Economic Co-operation and Development
Q[1] [First] Quarter
Reference Products The dairy products used in the calculation of the Farmgate Milk Price, which are currently WMP, SMP, BMP, butter and AMF
SEA South East Asia
Season New Zealand: A period of 12 months to 31 May in each year. Australia: A period of 12 months to 30 June in each year
SMP Skim Milk Powder
TE GDT Trading Event
USDA NASS US Department of Agriculture National Agricultural Statistics Service
USDA Oceania US Department of Agriculture Agricultural marketing service price series for specific products in the Oceania region
WMP Whole Milk Powder
YOY Year-on-year
YTD Year to date
Fonterra draws the information in this update from a variety of principally external sources listed below. Also included are defined acronyms for better understanding.
GLOSSARY
NZMP PERSPECTIVE JUNE 201918
Tracking the global dairy market Production, Export and Import chartsThe production, export and import charts illustrate year-on-year changes in production, exports and imports for a range of countries that are important players in global dairy trade.
The absolute size of the bars represents the change in production, exports or imports compared to the same month the previous year. The portion of the bar below zero represents a year-on-year decrease and the portion above the line shows the year increase for that country. Where countries are not shown this is likely due to the data not yet being available.
Weather Source (Page reference – 11)Comments on weather are obtained from various government weather sites as well as independent reports including Martell Crop Projections. Global milk production data is sourced from government and industry websites including US Department of Agriculture (USDA), EuroStat, Dairy Australia, Dairy Companies Association of New Zealand (DCANZ) and others.
REFERENCES
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Important note: The information and commentary contained in this ‘Perspective from NZMP’ is based on publicly available official government statistics; industry association reports; other published industry reports together with data and insights developed by Fonterra’s Global Dairy Intelligence group (‘GDI’). These sources are identified as appropriate in this ‘Perspective from NZMP’. GDI insights and data are derived from a global dairy market model populated by publicly available data. The model inputs and outputs do not reflect Fonterra’s non-public production, pricing or sales data. Fonterra Co-operative Group Limited and its group members involved in the manufacture or sale of NZMP branded products (‘Fonterra’) has provided this ‘Perspective from NZMP’ for informational purposes only. It does not constitute recommendations or advice for the purposes of making financial decisions regarding trading in dairy products or commodities, or dealing in financial instruments relating to dairy commodities. Although every effort is made to ensure the accuracy of reproducing and interpreting such information, no warranty or representation of such is made and Fonterra shall have no liability in respect of any reliance placed on such information in the formulation of any business decision.