Skim milk powder prices soared at GlobalDairyTrade to shrink their discount to whole milk powder below $100 a tonne for the first time in five years, amid “decent” demand from China, and a squeeze on European supplies.
The overall GlobalDairyTrade (GDT) index gained 3.6% at Tuesday’s auction, rising for the first time in five events.
The headway was led by skim milk powder, which soared by 8.4% - its largest gain in 19 months - to $2,889 per tonne, an eight-month high.
The gain outpaced the 3.2% gain in values of whole milk powder, which accounts for most of the volumes traded at GDT, to close the gap between the two products to $96 per tonne.
That was the lowest premium since April 2015 for whole milk powder (WMP) over SMP which, in having had fat removed, is viewed as an indicator of dairy protein values.
For the front, October contracts, the premium narrowed to $24 per tonne.
‘Point to additional price gains’
Tuesday’s result extends a period of outperformance for skim milk powder, which two months ago stood at a $538-per-tonne discount to whole milk powder at GlobalDairyTrade.
It comes against a backdrop of tightened supplies in the European Union, the top skim milk powder exporter, following a hit to milk output from high summer temperatures.
“While the hit on Western European milk production from the recent heat wave has abated, SMP manufacturers are still catching up on production,” the US Department of Agriculture said in a dairy market briefing last week.
“That leaves asking prices a bit higher than some buyers like.
“Many contracts through 2020 and into 2021 point to additional SMP price firming.”
For Oceania, the USDA reported that “export interest from South East Asia and China has been decent” for skim milk powder, while whole milk powder values have grappled with an easing in interest from Middle Eastern importers.
The outperformance of skim milk powder too extends a trend of dairy proteins faring better than fats at GDT, a dynamic viewed as a stemming from a continued fallout from the Covid-19 in deterring dining out.
The likes of restaurants, less patronised during the pandemic, are significant customers of dairy fats, for the likes of baking or decorating desserts.
Meanwhile, China’s renminbi strengthened on Tuesday to its highest against the dollar in 16 months, making the country’s imports more affordable, and a factor deemed by Commonwealth Bank of Australia as “supportive” to dairy prices.
Butter prices indeed fell at Tuesday’s auction, by 1.4% to $3,282 per tonne, their weakest in four years.
However, anhydrous milk fat did increase by 2.0% to $3,910 per tonne, recovering from their own four-year low.