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Markets Commentary

2018 is likely to start on a challenging note as current milk prices are significantly ahead of market returns.

EU milk supply has recovered strongly led by tier one producers such as Germany, France and the UK (Monthly flows now at 4%-5%). Supply is also strong in second tier producers such as Ireland and Poland. Internationally, milk collection in the USA is up 1.9% year to date, largely driven by the mid-western states, with flows exceeding 3% throughout this region (highlighted in blue in the map provided by NMPF).


Source: NMPF


The recovery in milk prices in 2017 was largely driven by good returns from milk fat. The EEX Butter Index in January at €4,083/tonne, has fallen from highs of €6,500 achieved in September. While butter prices have corrected from historically high levels, low SMP returns means stocks will take time to rebuild and prices, while falling, should remain robust.  Several factors contributed to the “butter boom” in 2017 including a reduction in milk production, a lower milk fat content and strong global demand for butter and cream.

The EEX SMP Index at €1,370 is at rock bottom, impacted by the overhang of SMP stocks in Europe and proposals to limit intervention purchases in 2018. The current market is categorised by exceptionally strong SMP exports at very low prices (EU exports are +39% year to date, with output down 4.7%).  Market direction will depend on the management of intervention stocks which limit any significant upward potential.

EU cheese exports and domestic demand have kept the market reasonably well in balance but the ever increasing production has put considerable pressure on prices. The lower prices could again stimulate export demand. Additional Chinese buying may offer some support. The combination of strong global production and weaker export demand from major buyers (i.e. US, Japan and Korea) is a concern.