Dairy market analysis: Contrasting fortunes for butter and SMP continue

European dairy markets’ recent trend of firmer skim milk powder (SMP) and weaker butter continued over the last week, according to multi-national financial services firm StoneX (formerly INTL FCStone).

In a breakdown of where the market is at the moment to AgriLand, Dr. Peter Meehan, senior commodity analyst at StoneX, said:

“The European SMP quotation continued to grind higher for the fourth week in a row and is now up 2% since mid-November.

EEX SMP futures have also continued to edge higher with the Jan-21 to Jun-21 contracts up 0.7% on average over the last 10 days.

“The European butter quotation on the other hand saw its seventh decline in as many weeks, down 2.9% in that period.”

Continuing, Dr. Meehan added that it was better news for EEX butter futures with its front six months gaining 1.7% on average since December 9, with strong gains for butter at last week’s Global Dairy Trade (GDT) lending some support to European butter prices.

“GDT butter was up 6.0%, while the overall index moved up by 1.3% with WMP (+0.5%); SMP (+1.9%) and AMF (+1.9%) also contributing to the strength at last week’s auction,” he noted.

Supply vs demand

“Looking at the supply/demand picture, global milk production remained strong in October with combined collections for the five big global dairy exporters up 1.6% compared to last year,” the StoneX analyst said.

“The EU (+1.0%); NZ (+0.8%); the US (+2.3%) and Argentina (+5.7%) all saw year on year gains while Australia (-0.3%) was the only one to see a decline in October.

“In Europe, a 0.7% decline for both German and French supplies, Europe’s two biggest milk producers was more than offset by gains for the UK (+0.6%); Poland (+1.9%); Ireland (+8.3%); Denmark (+1.7%) and Belgium (+3.3%).

Data for November meanwhile is putting New Zealand collections down 2.5% while US milk production increased by 3.0%.

“Looking at the demand-side, export numbers released over the last week have a been a bit mixed. EU dairy exports were down heavily across most of the main products.

“Export data for New Zealand for November on the other hand showed dairy exports were quite a bit stronger across most product groups, with increased exports to China driving their monthly total higher.

“The increased strength in the Euro currency versus the US dollar is likely contributing to this, making European dairy exports less competitive on the Global market,” Dr. Meehan concluded.