Global Milk production has started to increase, posting a 1.48% increase year over year (YOY) with New Zealand posting 8-9% increases. Although Australia is down approximately 4%, conditions in New Zealand have been near ideal, bringing considerable optimism that these gains will continue through their season. Milk production in the U.S. also continues to grow YOY in the 2-2.4% range and continuing to grow, as the Milk price over income level is at its highest level in years. This, more than anything, will spur increased production in the U.S. Although, we have seen the supply increases both globally and domestically, demand is driving overall Dairy prices much higher as NFDM is now trading in the middle $1.80’s. CME NFDM Futures prices for Q1 and Q2 have risen almost 10 cents/lb in the last 30 days. Asian demand is being attributed to the increase, as domestic supplies of NFDM are at a high historical point. We are predicting however, that prices will remain high — at or near present levels — through Q1 and then begin to fall.
MPC 70 and 85 prices, which have been trading relatively flat compared to NFDM, are now starting to feel the pressure with prices rising through Q4 and buyers wanting more protection and locked in volume.
The pricing pressure on NFDM has added continued pressure to the WPC 34 market which can only be described as hot with demand far outstripping supply. The WPC 34 price should follow the same trend as NFDM but could close its current price differential, making its increases higher in the coming months. Sweet whey prices have been trading flat and futures indicate that this trend will continue. Bullish factors include supply contraction due to higher protein/Permeate conversion while bearish factors include Lactose and Permeate waning demand, coupled with increased production capacity for both Lactose and Permeate being added in Q4.
WPC 80 demand and prices, while stronger in Q4 than Q3, appear flat with harder specifications getting higher premiums and commodity material being passed over. WPI demand and pricing in comparison, is strong and getting stronger with buyers starting to be concerned about Q1 pricing, in addition to volume. Demand in Q1 for both WPI and WPC 80 figure to be higher than projections, which has been a noticeable trend within the industry.