Breathtaking gains in dairy prices in Fonterra’s latest global auction had a feel of a short squeeze with aggressive bids and few offers. In particular, a genuine lack of free containers for maritime transit has hurt spot availability.
Chinese buyers returned to the market after the Lunar New Year holiday, and the event drew 180 participants, with just over 25,500 MT of products exchanged.
Price increases were most extreme on the butterfat-containing products, with whole milk powder leading the way with a strong 21 percent increase to $4364 per MT. Most product categories gained—anhydrous milk fat up 7.4 percent, butter up 13.7 percent, and skim milk powder up 3.5 percent—except for buttermilk powder, which was effectively flat.
Prices rose a composite 15 percent, up 30 percent since the start of the fiscal year. The latest results showed the biggest biweekly increase in over five years.
There has been plenty of talk of delayed shipments due to the lack of containers and vessels rather than to the supply of actual products, and logistics are cited as a strong contributing factor to strength in global dairy markets so far this year.
Prices for skim milk and butter are clearly at profitable levels for western-based U.S. dairy cooperatives to begin to explore export opportunities. What may be holding them back is some reluctance to manufacture to an international specification or standard and the looming question of container availability.
We have not seen prices for products like whole milk powder this high since 2013, and past volatility in this space should not be forgotten. Global dairy product pricing can and does rally quickly and can stay overvalued for several months, but pricing typically tends to collapse as quickly as it rises. So, we would express caution in chasing this market, especially ahead of the northern hemisphere spring flush.
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