Global demand for WMP remains weak and prices have plunged to levels not witnessed since 2009. This was reflected at the most recent (July 15, 2015) Global Trade Auction. The winning price for regular WMP offered by Fonterra for deferred delivery (5 months) fell to $1,820/MT FOB.
Prices for SMP (low heat) appear to be dropping rapidly with a one winning bid indicating a price of $1595/tonne for shipment starting in three months.
The factors that initially precipitated the decline in prices remain present; Chinese import for demand for WMP remains anemic, the Russian import ban on dairy products from major producers has been extended to August 2016, and the dollar remains relatively strong.
Nevertheless, markets are adjusting as the low product prices are being transmitted to farmers as lower milk prices. Consequently, milk production forecasts for a number of countries have been scaled back. This is particularly evident for New Zealand where milk production for 2015 is now forecast to decline by 1% from 2014.
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The import forecast for Mexico is raised by 10% to 230,000t as imports during the first four months of this year are up 20% over the monthly year-over-year pace of 2014. It is likely that the significant drop in international dairy prices is spurring a pick-up in purchases of SMP.
WMP
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The import forecast for China is lowered by one-third to 400,000t as carry-over stocks from 2014 are estimated to total over 300,000t. These stocks are anticipated to be drawn down significantly throughout the year and will thus reduce the need for imports. This lower import estimate is a sharp reversal from 2014 when China imported a record 671,000t. Consequently, WMP prices are being pressured as major suppliers such as New Zealand seek alternative markets.
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Although New Zealand’s shipments of WMP to China in the first 5 months of this year are down 65% on a monthly year-to-year basis, total WMP exports are down only 7%. New Zealand has been able to some extent offset the volume losses of the Chinese market by increased sales to destinations such as Algeria, Malaysia, and the United Arab Emirates. Since Chinese imports of WMP are not expected to recover this year, New Zealand’s export forecast is cut by 5% to 1.425 million tonnes.
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The export forecast for the EU is lowered by 23% to 345,000t reflecting the current slow pace of shipments during the first five months of this year relative to 2014. Shipments to Algeria are down 59% likely due to strong competition from New Zealand. Shipments of New Zealand WMP to Algeria in 2015 through to May have more than doubled (to 49,000t) in comparison to 2014.
