Chinese demand for dairy continues to be unrelenting. Even as the Chinese New Year approaches, when buying typically slows, buyers are still coming to market on the realization that high prices are here to stay. China milk production is down significantly, as disease has resulted in the culling of two million dairy cattle. As a result, they continue to rely on the world market, particularly New Zealand, to fill in the gap. As the largest dairy exporter, Fonterra, focuses on fulfilling Chinese demand for WMP, other major dairy exporters are being heavily relied on to make up the shortfall in SMP. U.S. manufacturers have turned their focus away from drying NFDM to making SMP in favor of higher world prices.
With demand still strong from all major dairy importers, many question whether the forecasted increase in 2014 milk production will be sufficient to replace the dwindling stocks. This suggests that pricing will continue to rise into Q1 and then have a long, drawn out decrease as supply and demand come together.
Since some customers have the flexibility to substitute milk powder needs with options from the whey complex, prices in this category will continue to rise with the WMP and SMP markets. Whey futures have recently seen considerable increases throughout all months, as buyers and sellers rationalize the supply and demand situation for 2014. Inventories of whey powder and high protein WPCs will continue to decrease, as exports continue to track on record pace, pushing prices even higher as we get into the first half of the year.