Milk price recovery on the horizon despite GDT slip

At the auction, whole milk powder (WMP) fell 2.7% to $2971/t, butter declined by 1.6% to $4890/t while other product categories continued the positive momentum. Skimmed milk powder (SMP) increased by 2.3% to $2724/t and, interestingly, cheddar prices increased by 4.5% to $4042/t.

Volumes traded were 4.1% lower at 34,514t compared to the previous event. Most of the product sold was WMP, which weighed negatively on the index.

However, while the latest event shows a marginal decline, all factors point to a recovery in the coming weeks when global milk supplies recorded a decline of 0.3% year on year in August. Normally there is an inverse relation between production and prices on the GDT with prices gaining momentum amid lower supplies and vice versa.

Despite the recovery in the months of September and October, prices are holding well below the peak of March 2022 levels, according to AHDB, and are hovering around pre-COVID levels barring butter, which is still holding above.

Powders constitute more than 50% of the sales volume on the GDT. China remains one of the major buyers in the powder markets. Along with China, other North Asian and Southeast Asian buying activities were also reported recently. According to the latest Rabobank report, an import deficit of 11.9mt of liquid milk equivalent (LME) is expected in China in 2023. The deficit is expected to increase over the next 10 years as demand in China is expected to increase at a greater rate than domestic supply.

Furthermore, the global picture for the markets seems to be improving with increased demand in China ahead of the Christmas holidays, expected to see increased purchases.

Considering lower supplies on the global front and increasing demand, prices are likely to return to the more positive momentum witnessed in the previous two months. This would ease margin pressure on producers to some extent, as farm-gate milk prices are underpinned by wholesale commodity prices.