The two halves of the milk cheque have come apart. Butterfat is weak and milk protein is firm, and the fundamentals behind each are clear enough that neither looks likely to change direction soon.
Butter did jump last week, but that was a European move rather than a global one. Cream prices had ticked up, and nerves are still frayed enough that a small rise in cream sends buyers reaching for butter quickly. Cream has since eased again, pushing butter back down. The stocks sitting available do not seem to settle anyone, which is telling, because milkfat fundamentals are the same in all three regions: a surplus that has been running for a while and a lot of stock built on the back of it. With demand relatively low, the market is still in a stock-building phase, which is what keeps butterfat soft.
The regional detail runs the same way. US butter output continues well ahead of last year while export growth has not kept pace, leaving an underlying oversupply, though seasonal cream tightness is prompting maintenance breaks at several churning plants. Oceanian milkfat is coming down quickly as US and Latin American butter flows into the Middle East, Southeast Asia and Australia, which keeps New Zealand exports low. With a milk flush arriving and prices uncompetitive in several regions, Oceanian product looks set to fall further. Buyers and cash-and-carry traders give butter some support at today’s levels, but consumption has not picked up.
Where the milk is actually going
SMP has turned genuinely tighter, and the reason is a production choice rather than a demand shock. Every producing region is seeing better SMP demand both at home and for export, and a good number of buyers still need coverage for this year. Producers, though, would rather make almost anything else: MPC, caseins, ultrafiltered milk, raw milk, even skimmed milk concentrate when the price justifies it. That pulls SMP output down. The same pattern is visible in the US, where NFDM has tightened on lower supply and stronger demand at once, with domestic disappearance running around 30% above a year ago as more skimmed milk goes into liquid ultrafiltered form instead of the dryers. Chinese stocks are relatively low, which points to more Asian demand in the months ahead, and New Zealand product has been selling heavily to Asian buyers at recent GDT events.
WMP tells a European story of its own. Production has slowed significantly as milk supply growth slows, and many buyers have nothing left to cover for the rest of the year. After the extra volume made during the EU flush had to be sold at export-competitive levels, prices have moved back up to their usual premium, spot availability is close to none, and EU material is no longer competitive on export markets. In New Zealand, WMP is trading on par with SMP, which is unusual and points to WMP rising, since SMP is unlikely to fall.
All of which leaves one variable. Vesper’s answer to what moves these products next is the milk intake.
