Additional remarks milk prices October 2009

The average milk price calculated for October 2009 deliveries is € 27.06 per 100 kg standard milk. This is compared with the same month last year € 6.67 lower (minus 19.8%). In comparison to September 2009 the average milk price is € 0.22 higher. While milk prices are climbing out of the valley the average October milk price is still far below the level of last year.

Production

With North Island producing less, dragging total production down by nearly 1.5% and South Island consistently producing more, total NZ-dairy production is predicted to be in a current range of 0 - 0.5% up on last season. If a normal weather pattern prevails for the remainder of the season estimates are that New Zealand’s 2009/10 production will be appr. 1 -1.5% above the previous season.
Australia’s production figures for the first 3 months of the season showed a decline of appr. 4% compared to last year.In September milkproduction was 7.2% lower,compared to same month last year,extending the year-on-year decline. Production for the whole current 2009/10 year is estimated at 9.0 billion litres or a reduction of 4% on last year.

Market

Fonterra Co-operative Group has recently announced a revised forecast payout for the 2009/10 season of NZ$ 6.05 per kg of milksolids. .(=± € 23,90/100 kg melk* ) This is a 95 cent increase in the previous forecast of $5.10 per kgMS from end September.
The $6.05 per kgMS forecast comprises a Milk Price of $5.70 per kgMS, up $ 1.10, and a Value Return forecast of 35 cents per kgMS. This is a 15 cent reduction in the Value Return component. Retrospectively to June the milk price is adjusted from 4.60 to 5.70 NZ dollar per MilkSolids.
The calculated milk price of Fonterra is in October €4.56 higher compared to previous month.
Fonterra Chairman, Henry van der Heyden said the revised forecast reflects Fonterra’s increasing confidence in recent gains in international dairy prices,at the same time adding that the recovery in consumer demand and the global economic situation remain fragile.

Markets continue to look firm particularly in Asia and the Greater Middle East. However, the upwards drive in prices looks to be slowing and it is possible dairy commodity prices are nearing their peak of this current upwards trend, with some such as butter (oil) possibly already at their peak.
The 15 cent fall in the Value Return forecast is due to prices of cheese and casein,which have not risen at the same rate as powder prices (on which Fonterra’s Milk Price is based). If Fonterra cannot achieve an equivalent return for these products compared to milk powders, the difference will lower profits. As a consequence, the Distributable Profit (Value Return) forecast has been reduced by 15 cents to 35 cents
Furthermore the level of the New Zealand Dollar, which has been trading around 72 cents US, remains a concern for the near future but this has been fully factored in to the revised 2009/10 forecast.

US milk production in October was estimated down 1.1% from a year ago. The drop in cow numbers continued in October,while productivity nationwide remained above last year’s levels.
Production is expected to fall further in the remaining few months of 2009.
Total cow herd is expected to average about 3% smaller compared to 2008.This will continue in 2010.
USDA forecasts milkproduction to fall 0.8% for 2009,and a further 0.9% to 187.7 billion lbs.in 2010.
Declining feed prices and higher milkprices will further improve the so called milk to feed profitability price ratio,but not to a level that will cause further expansion.
In the face of tighter milk supplies and improving demand the all-in milkprice is expected to rise to $16.05 to $16.95 per cwt ( =± € 24,20/100 kg on average) next year, after averaging $12.60 to $12.70 in 2009.

Dairy product prices and farm level milk prices continue to show signs of improvement.
Cheese market is firmer and Cheddar 40-pound block prices were gradually rising to $ 1.60 per pound(=± $ 3525/ton) The current (intervention) support price on blocks is $1.13.
Butter had improved further from $1.35 end October to $1.52 (=± $ 3350/ton) per poundend November.The current support price on butter is $1.05.
Dry whey has been trading around in the $0.35 to $0.37 per pound range and nonfat dry milk prices are also improving up to $1.40 (=± $ 3100/ton) per pound,which is 75% above the current (intervention) support price of $0.80.
These price improvements increased the Class III price from $11.20 for August to $12.11 for September and $12.82 for October,the highest for the year.
However ample stocks still exist.

Export prospects are improving and so have world prices. Against this background export bonuses have declined sharply.For skimmed milkpowder no export bonus is given.The same picture is seen in Europe where all export subsidies are recently abolished.

MARKET SITUATION

Dutch Quotations € per 100 kg
1 January 2009 5 December 2009 index trend
Butter 210 338 161,0
Whole milkpowder 195 258 132,2
Skimmed milkpowder 150 220 146,7
Wheypowder 39 68 174,4
Gouda cheese ± 310 ± 270 87,0

 

 

Market comments

In the Netherlands milk output during the period January – October 2009 was 9.269 billion kgs or appr. 2% higher, compared to the same period last year. The average milk fat and protein percentage during this period was 4.34% and 3.47% being unchanged resp. 0.01% lower compared to last year.
The milk output figure in the EU-27 for the period January-August 2009 declined and was 0.20% lower than the previous year. Despite this trend milkoutput in the April – August period did rise 1% compared to same months last year.However this picture is influenced by the German milk strike in the second quarter of 2008.

A general positive sentiment is noticeable. Rising prices for dairy commodities on the international and EU markets have turned the tide. Rising demand and a limited growth of milk production worldwide are now bringing markets more in balance.
On the worldmarket many believe commodity prices are reaching their peak. Although prices are believed to remain relatively buoyant and may stabilise around current levels until the end of the first quarter of 2010, upward momentum is slowly fading away.
At the latest Fonterra auction of december milkpowder prices were just 4% higher,while AMF prices were down 8% on average.
Until now price recovery has the character of a supply driven development.
Especially on the EU buttermarket prices have risen fast as the availibility of milkfat remains very tight for the moment.
Also milkpowder prices are stabilising around current levels.And with a usual time lag cheese prices too have started to recover.
Big question is however : will this be the start of an upturn or are buyers anticipating a rebuilding of inventories which were run down when recession fears were being discounted. For a more durable recovery a structural increase of demand is needed and there are no signs yet this will happen any time soon.

Furthermore ample intervention stock could limit upward price movements in the near future. One important signal came from Brussels recently in eliminating all export subsidies up to now.