New Zealand WMP is now priced under New Zealand SMP, something that happens perhaps once every few years. In the United States, NFDM sits well above butter. In Europe the spread between butter and SMP has closed to around 700 euros per tonne. The same forces that have run through dairy for six months, weak fat demand and a boom in protein, have now compressed the usual order of things to the point where the two halves of the milk check are worth nearly the same.
Fat is the weak side, and the reasons differ by region. Global butter markets stay soft on strong supply that keeps building stock. European butter eased over the past weeks as cream became a little more available at slightly lower prices, though the move was small and there is not much conviction that it should go much lower. The US is the harder case. The butter surplus there is large, milk was still running 1.74% above last year in August, and exports are doing the work of keeping that supply from overflowing. With the herd still big, US butter prices look set to keep grinding lower until a bottom turns up. Oceanian milkfat has fallen at every recent GDT event, which says buyers see no reason to chase volume.
Protein pulls the other way
European SMP moved up again this week, with export demand paying more to secure what is left for Q4 and Q1, helped by a stronger dollar against the euro making European offers more competitive. US NFDM is not competitive at all, with European and New Zealand material trading around $1,000/mt below the CME Spot Call market. American production is uneven: milk and powder output run strong in the West while other regions struggle to find enough milk for Class IV schedules, to the point that some Western milk has moved east to fill plants making fresh dairy. New Zealand, meanwhile, lifted milk solids production 3.3% above last August and pushed milk powder exports up 47.11% year on year, off a seasonal low point.
European WMP has climbed since early August, as seasonally slower EU milk production pulled WMP output back and availability with it. That has priced European material above New Zealand and Latin American WMP, so export demand is going to the cheapest origin. New Zealand WMP itself is stable to slightly weaker, with GDT results falling short of what futures had indicated and Chinese interest fading above $3,500/mt.
Which leaves the question the market has not answered. Expensive milk protein has already started lifting milk prices, and higher milk prices should eventually draw out more milk and more protein. All of that milk arrives with its fat attached.
