Let’s Chat Markets – 22 November 2023

Let’s Chat Markets is a weekly podcast, hosted by HighGround Dairy’s top analysts. At the end of every week, they sit down to recap the week in dairy markets and summarize recent reports and relevant news. The podcast can be found here on our dashboard, or wherever you listen to your podcasts. Subscribe so that you never miss an episode! 

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Transcription:

[00:10] Alyssa: Hello and happy Wednesday to all of you! Thank you so much for tuning into Let’s Chat Markets, your favorite weekly dairy market podcast powered by HighGround Dairy. We are recording on a Wednesday because US dairy markets will be closed on Thursday and Friday this week in celebration of the Thanksgiving holiday. Even our resident Kiwi will be taking hold of his new position as a US resident and experiencing the holiday with his family. That being said, our international customers should not hesitate to reach out and you can send us an email at info@highgrounddairy.com and there will be someone on the desk to help you should you need it. Switching things up this week, Stu Davison is joining me today as this week was really all about the international markets. From Chinese import data to a rather bearish Global Dairy Trade (GDT) Auction, there’s a lot to cover. Before we jump into that, I do want to mention that October US Milk Production and October Cold Storage figures were updated this week, but we record separate bite-sized episodes covering those results so don’t forget to give those Skim episodes a listen as well (click here to listen to those episodes). Alright, Stu where should we start?

[01:26] Stu: Well, since it’s fresh on our minds with an overnight data release, let’s discuss New Zealand’s Milk Production data and then work backwards to the beginning of the week. New Zealand milk production for October was down in volume terms 0.3%, but up 0.9% in milk-solid terms. Better than last year’s, but not as strong as the market had expected, which, from our take, is a big sign of the impacts of lower cow numbers in New Zealand this season, but also the impact of tight profit margins for kiwi farmers at the moment. Something which also reflected in significantly smaller palm kernel import figures during October.

[02:02] Alyssa: Yeah, it wasn’t very difficult to eke out gains over prior year given how ugly collections were last year. And, speaking of stronger milk, those October export data was also pretty interesting and while volumes were strong, it was unsurprisingly pretty bearish on China as it was the lowest shipments to the region since 2016 for October across those key commodities.

[02:25] Stu: Yeah, indeed. I think we really have to mention how strong Algeria was in October’s figures, soaking up massive volume of New Zealand Whole Milk Powder (WMP) for the month, somewhat offsetting those low volumes sailing for China. However, this dataset also reflects export volumes that did not sail in September, helping to plump those October’s figures out just a little bit.

[02:45] Both WMP and Skim Milk Powder (SMP) volumes lifted, with SMP exports still tracking strongly ahead of the prior year, up 35.1% year-to-date. Cheese volumes popped 30.6% year-on-year in October with China the key destination for cheese, pushing year-to-date exports to a 16.2% gain, a sign of strong early-year volumes, but also a reflection of the better milk valorization for Kiwi processors during the early part of the season.

[03:13] Alyssa: Before we dig into China chatter, let’s discuss that GDT Auction. For the first time in nearly two years, we saw a flat auction result, though each commodity kind of had a different set of fundamentals to follow. Overall, I think it’s safe to say that this auction emphasized a key market trend that despite the current tightening of global supplies, the presence of fluctuating demand continues to maintain market equilibrium.

[03:42] Stu: Yes, exactly right. Let’s jump through some of those key data points to sort of weigh-up how that looks.

[03:47] WMP posted a 1.9% gain on the index, a slight lift in the forward curve, but the real problem was the nearest three contracts were unable to push back through the $3000/MT mark, again, just showing how balanced the market is for WMP at the moment. S­­­­­MP prices slumped overall, but this hides a massive slide that New Zealand SMP prices took, down between 3.4% and 8.5% across contract periods, pushing the nearest three contracts back under the $2,600/MT mark that has been a steady point of resistance over the last few months and potentially is going to struggle to push back over in the near term.

[04:23] China secured the most WMP, but it was the Middle Eastern buyers doing the pushing, adding to their large purchases over the last five months. On the SMP side of things, Southeast Asian buyers purchased the largest chunk (about two-fifths), closely followed by North Asian buyers at about a third of the total volume sold.

[04:41] Alyssa: Those fat results were pretty disappointing, too, weren’t they?

[04:44] Stu: Disappointing is right! Fonterra had signaled that fat demand was good prior to this auction and even went as far as reducing their 12-month offer forecast volume for GDT events coming up (click here to read our Pre-GDT Forecast Volume Analysis). Both AMF (Anhydrous Milk Fat) and butter volumes were reduced but this wasn’t actually enough to convince buyers to pay much more for either product at this auction. AMF prices did pop 0.9%, while butter prices melted 1.1% with very flat forward curves for both products—not at all what was expected! Again, just talks to how balanced the market is at the moment.

[05:18] Cheese prices took a gnarly nosedive at this event, though, down 9.7% on the index. However, it was contract periods 2 and 4 that did most of that damage, down 14.7% and 14.9% respectively, which means, in terms of GDT Auctions, that these prices hardly got off of the starting blocks and really sinks the New Zealand cheese price!

[05:38] Alyssa: Yes, so we’ve discussed that unimpressive North Asian Presence on GDT so let’s talk about what China’s import data told us. Chinese imports have remained pretty sluggish with the data into October revealing more gaps in the already substantial deficit so far this year in 2023.

[05:57] Stu: Yes, exactly. WMP imports slid 31.7% in October’s data and that was only on 18,487MT. That marks the smallest volume this year, the smallest since October 2016, and to make it even worse, New Zealand even lost market share in this dataset, with Australian exporters providing more-than-normal volume of WMP. This is potentially a result of Algeria’s strong tender demand for New Zealand WMP over this period but again, it’s a break of trend. SMP imports lifted 0.8%, continuing China’s strong run of demand for SMP this year, with year-to-date imports tracking 8.9% ahead or 24,758MT ahead—massive.

[06:39] Milk fat imports were very sluggish in October, with butter imports down 11.5%, while AMF volumes lagged a massive 40.8%. Year-to-date imports of both milk fats are circa 9.5% behind the same period last year, just to emphasize how slow they’ve been this year.

[06:55] Cheese imports were the winner for this data, though, popping 15% year-on-year higher, with US exporters actually making the most of competitive cheese prices into China. US exporters marked their biggest market share into China ever, which is very impressive. Cheese demand in China continues to grow, with year-to-date imports up 18%, reflecting how Chinese demand for cheese continues to grow, somewhat due to ongoing rapid product development across China’s key cities. This week we heard that Cheese Mousse is the new thing on the block—lots of protein with the equivalent calories of an apple!

[07:27] Talking about proteins, Casein and Caseinate imports also exploded in this dataset, with New Zealand casein marking the largest volume in China imports on record—impressive.

[07:37] Alyssa: Yeah, super impressive, and we covered this a bit in our forecast report too but the demand landscape in China is certainly seeing some interesting changes. If you’re not a customer and want to read our full coverage of China’s current situation, head to our website and request a free trial today.

[07:56] Given that it’s been a short week, that about covers it all. I do want to take a moment to express our sincere gratitude for each and every one of our customers, partners, and employees during this holiday season. We are deeply thankful for all of you and extend our best wishes for a happy and healthy Thanksgiving Day. Cheers!