dairy ingredient outlook · 2020-03-23 · a market in transition a shifting world to butterfat...
TRANSCRIPT
Dairy Ingredient Outlook
IDFA –Sweetener Colloquium
Orlando, Florida
February 13, 2018
February 2018 IDFA Sweetener Colloquium 1
Topics
February 2018 IDFA Sweetener Colloquium 2
The backstory – milk on the rise
Cheese – the key to milk checks
More cheese – more whey
Demand for butter rolls along
Will milk powder remain low?
Milk & dairy product forecast
Through the looking glass: a market in transition A shifting world to butterfat deficit & protein surplus
• The dairy industry is transitioning from a protein short world to a butterfat deficit land.
• This is creating unique challenges for buyers and sellers alike.
• It is also creating considerable market volatility that has many stumped as to how to manage.
• The situation leaves everyone wondering if and when protein markets rebalance.
February 2018 IDFA Sweetener Colloquium 3
It’s simple biology! Only one-third of milk solids are butterfat.
February 2018 IDFA Sweetener Colloquium 4
2015
Components Holstein Jersey
Butterfat 3.67% 28.9% 4.81% 34.7%
Protein 3.08% 24.5% 3.65% 25.4%
Other solids 5.76% 46.6% 5.76% 39.9%
Total Solids 12.4% 100% 14.4% 100%
29%
71%
HOLSTEIN
Butterfat Solids nonfat
34%
66%
JERSEY
Butterfat Solids nonfat
Source: Holstein Association USA, Inc.
Butter packs a punch in milk checks Butterfat may provide incentive for more milk in 2018.
February 2018 IDFA Sweetener Colloquium 5
$0
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00
20
02
20
04
20
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08
20
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12
20
14
20
16
($ p
er
cw
t.)
Bfat Protein Other Solids
• Between 2000 and 2013
butterfat contributed, on
average $5.57/cwt. to the
Class III milk price or 39% of the value.
• From 2014 to present
butterfat has accounted
for 48.5% of the Class III milk price contributing on
average $8.39/cwt.
• This is no longer a U.S.
phenomenon – European
and Oceania dairy
producers are seeing the
same thing. Source: USDA - AMS
EU & NZ milk price outlook improves Current prices are unlikely to slow milk production in 2018
February 2018 IDFA Sweetener Colloquium 6
20
22
24
26
28
30
32
34
36
38
40
Jul-1
5
Oc
t-1
5
Jan
-16
Ap
r-16
Jul-1
6
Oc
t-1
6
Jan
-17
Ap
r-17
Jul-1
7
Oc
t-1
7
(eu
ro p
er
10
0 k
g)
EU Price for Raw Cow Milk
Source: Eurostat, Fonterra
$3
.85
$3
.87
$7
.59
$4
.75
$6
.10
$7
.60
$6
.08
$5
.84
$8
.40
$4
.40
$3
.90
$6
.12
$6
.40
20
05
/0
6
20
06
/0
7
20
07
/0
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20
08
/0
9
20
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/1
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/1
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20
11
/1
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20
12
/1
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20
13
/1
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20
14
/1
5
20
15
/1
6
20
16
/1
7
20
17
/1
8 (
F)
(IN
NZ$
PER
KG
. O
F M
ILK
SO
LID
S)
Fonterra Farm Gate Price Dividend
Exporters are expanding milk supply 2017 milk moved ahead of 2016 by mid-year.
7 February 2018 IDFA Sweetener Colloquium
-6
-4
-2
0
2
4
6
8
10
Q1
20
11
Q2
Q3
Q4
Q1
20
12
Q2
Q3
Q4
Q1
20
13
Q2
Q3
Q4
Q1
20
14
Q2
Q3
Q4
Q1
20
15
Q2
Q3 Q4
Q1
20
16
Q2
Q3
Q4
Q1
20
17
Q2
Q3
Q4
(in
bill
ion
po
un
ds)
EU US AU AR/BR NZ
Source: USDA – AMS, Eurostat, Dairy Australia, NCANZ, Dept. of Ag – AR & BR
Topics
February 2018 IDFA Sweetener Colloquium 8
The backstory – milk on the rise
Cheese – the key to milk checks
More cheese – more whey
Demand for butter rolls along
Will milk powder remain low?
Milk & dairy product forecast
More milk – more cheese!
9
• Europe has increase cheese
production 376 million pounds during the first 11 months of 2017
compared to the same period in
2016.
• The United States has expanded
cheese output by 290 million over
a comparable period.
• Australian cheese production is
nearly unchanged.
• Considerable amounts of butterfat
continue to move to cheese
production in 2017.
February 2018 IDFA Sweetener Colloquium
(100)
(80)
(60)
(40)
(20)
-
20
40
60
80
100
120
Ja
n-1
6
Fe
b-1
6
Ma
r-16
Ap
r-1
6
Ma
y-1
6
Ju
n-1
6
Ju
l-16
Au
g-1
6
Se
p-1
6
Oc
t-1
6
No
v-1
6
De
c-1
6
Ja
n-1
7
Fe
b-1
7
Ma
r-17
Ap
r-1
7
Ma
y-1
7
Ju
n-1
7
(in
mill
ion
po
un
ds)
YOY Change in Cheese Production
(EU, US, AU)
Source: USDA – AMS, Eurostat, Dairy Australia
…but, there is more cheese demand
[CELLRAN
GE]
[CELLRAN
GE]
[CELLRAN
GE]
[CELLRAN
GE]
[CELLRAN
GE]
[CELLRAN
GE]
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GE]
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GE]
[CELLRAN
GE]
[CELLRAN
GE]
[CELLRAN
GE]
0.00 1.00 2.00
Canada
Brazil
Belarus
Australia
Mexico
Japan
Argentina
Ukraine
South Korea
Philippines
Taiwan
Billion pounds
Cheese Consumption 2017 (F) 2016
February 2018 IDFA Sweetener Colloquium 10
Source: USDA – FAS Dairy Products Annual
More pizza please! Globally pizza is increasing cheese consumption
13432 13747 14357 14967 15605 16063 16409
9351 9742 10255 10886 11629 12530 13811
3646 3883 4163
4428 4663
4893 5097
2010 2011 2012 2013 2014 2015 2016
(NU
MB
ER
OF S
TOR
ES)
WORLDWIDE PIZZA
STORES
Pizza Hut Dominos Papa John's
11
Shanghai, China (2016)
• China’s 2017 cheese imports
were 11% higher than 2016.
• India’s cheese demand is
reportedly expanding at 15-
20% per year.
• Pizza consumption continues to
be a driver of higher cheese
consumption in non-traditional markets.
• Over 5 billion pizzas are sold
each year according to
Statistic Brain.com • Dairy Management Inc.
continues to support efforts to
increase cheese on pizza.
February 2018 IDFA Sweetener Colloquium
Source: Statistica
Butter & cheese drive EU milk production Changes in cheese & butter prices explain one-third of milk.
February 2018 IDFA Sweetener Colloquium 12
€ -
€ 1,000
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€ 6,000
€ 7,000
(800)
(600)
(400)
(200)
-
200
400
600
800
1,000
1,200
Jan
-14
Ap
r-1
4
Jul-
14
Oct
-14
Jan
-15
Ap
r-1
5
Jul-
15
Oct
-15
Jan
-16
Ap
r-1
6
Jul-
16
Oct
-16
Jan
-17
Ap
r-1
7
Jul-
17
Oct
-17
(eu
ro p
er m
etri
c to
n)
(met
ric
ton
s)
EU Chg. in milk based on Dairy Product Prices
YOY Chg EU Cheese 4mo lag
EU SMP 4mo lag EU Butter 4mo lag
2.8%
12.3%
12.7%
37.1%
30.2%
4.9%
3.2%
13.6%
11.5%
38.8%
31.5%
4.8%
EU-28 Milk Utilization
Milk powder
Cream for directconsumption
Drinking milk
Cheese
Butter
Other
2012
2016
Source: Eurostat, European Commission
Topics
February 2018 IDFA Sweetener Colloquium 13
The backstory – milk on the rise
Cheese – the key to milk checks
More cheese – more whey
Demand for butter rolls along
Will milk powder remain low?
Milk & dairy product forecast
More cheese – more whey Higher cheese output is upping whey production
February 2018 IDFA Sweetener Colloquium 14
-
1
2
3
4
5
6
2012 2013 2014 2015 2016
(in
bill
ion
po
un
ds)
EU, US & AU Whey & Derivatives
Production
EU US AU
Whey
62%
WPC
31%
WPI
7%
Whey
67%
WPC
29%
WPI
4%
2012 & 2016 U.S. Whey
Production
2012
2016
Source: USDA, Eurostat, Dairy Australia
China’s demand for whey is robust China’s whey imports drive market price.
February 2018 IDFA Sweetener Colloquium 15
35
,79
2
22
5,0
50
30
1,5
33
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
201
7
(in
me
tric
to
ns)
China’s Infant Formula Imports 2
11
,79
6
49
5,1
61
52
8,7
32
-
100,000
200,000
300,000
400,000
500,000
600,000
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
201
7
(in
me
tric
to
ns)
China's Whey Imports
Source: GTIS
U.S. Production is Outpacing Demand Near-term, new capacity can weigh on price
February 2018 IDFA Sweetener Colloquium 16
0
5
10
15
20
25
30
JAN MAR MAY JUL SEP NOV
(in
mill
ion
po
un
ds)
U.S. Domestic WPC
Commercial Disappearance
2015 2016 2017
2017 v. 2016 -14.9% 0
2
4
6
8
10
12
JAN MAR MAY JUL SEP NOV
(mill
ion
s o
f p
ou
nd
s)
U.S. Domestic WPI
Commercial Disappearance
2015 2016 2017
2017 v. 2016 -1.5%
Source: USDA
Topics
February 2018 IDFA Sweetener Colloquium 17
The backstory – milk on the rise
Cheese – the key to milk checks
More cheese – more whey
Demand for butter rolls along
Will milk powder remain low?
Milk & dairy product forecast
What caused butter demand to soar?
[CELLRANGE]
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[CELLRANGE]
4.00
5.00
6.00
7.00
8.00
9.00
10.00
(pe
r c
ap
ita
po
un
ds
pe
r ye
ar)
February 2018 IDFA Sweetener Colloquium 18
Butter consumption rising As margarine consumption is falling.
February 2018 IDFA Sweetener Colloquium 19
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
19
09
19
13
19
17
19
21
19
25
19
29
19
33
19
37
19
41
19
45
19
49
19
53
19
57
19
61
19
65
19
69
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73
19
77
19
81
19
85
19
89
19
93
19
97
20
01
20
05
20
09
20
13
(fa
t-b
asi
s p
ou
nd
s p
er
ye
ar)
U.S. Butter vs. Margarine Per Capita Consumption
Butter Margarine
Source: USDA ERS
Small consumption gains add up Modest increases are adding to up a lot of butter.
• The United States per capita consumption of butter accounted for an additional 87.9 million pounds of butter from 2012 to 2016. • Over that same time, U.S. butter
production fell 20 million pounds. • That suggests that trade can
have an impact on U.S. butter prices.
• Europe’s per capita consumption accounted for 293.4 million pounds more butter over the same time horizon. Europe’s butter output gained at similar levels over the same time frame.
February 2018 IDFA Sweetener Colloquium 20
-
2
4
6
8
10
12
14
16
2012 2013 2014 2015 2016 2017
(po
un
ds
per
cap
ita)
Per Capita Butter Consumption
EU28 US
Source: USDA (ERS), European Commission
Butter production is unchanged Despite high prices, butter production remains flat in US and EU.
February 2018 IDFA Sweetener Colloquium 21
0
20
40
60
80
100
120
140
160
180
200
JAN APR JUL OCT
(30-D
AY
MO
NTH
, M
ILLI
ON
LB
S)
U.S. Butter Production
2015 2016 2017
0
0
0
0
0
0
JAN APR JUL OCT
(30
-da
y m
on
th, m
illio
n lb
s)
EU Butter Production
2015 2016 2017
EU butter
is 0.5% less
than 2016
U.S. butter
is 0.5%
more than
2016
Source: USDA, Eurostat
Topics
February 2018 IDFA Sweetener Colloquium 22
The backstory – milk on the rise
Cheese – the key to milk checks
More cheese – more whey
Demand for butter rolls along
Will milk powder remain low?
Milk & dairy product forecast
High butter, lower NDM/SMP prices Historically high butter prices could put a lid on NDM/SMP.
February 2018 IDFA Sweetener Colloquium 23
$-
$0.5000
$1.0000
$1.5000
$2.0000
$2.5000
$3.0000
$3.5000
Ja
n-0
6
Ja
n-0
7
Ja
n-0
8
Ja
n-0
9
Ja
n-1
0
Ja
n-1
1
Ja
n-1
2
Ja
n-1
3
Ja
n-1
4
Ja
n-1
5
Ja
n-1
6
Ja
n-1
7
Ja
n-1
8
(USD
pe
r p
ou
nd
)
U.S. Butter and NDM Prices
CME Butter NDPSR (NASS) NDM
€ -
€ 1,000
€ 2,000
€ 3,000
€ 4,000
€ 5,000
€ 6,000
€ 7,000
Ja
n-0
6
De
c-0
6
No
v-0
7
Oc
t-08
Se
p-0
9
Au
g-1
0
Ju
l-1
1
Ju
n-1
2
Ma
y-1
3
Ap
r-1
4
Ma
r-1
5
Fe
b-1
6
Ja
n-1
7
De
c-1
7
(eu
ro p
er
me
tric
to
n)
EU Butter and SMP Prices
EU Butter EU SMP
Source: USDA – AMS (Dairy Market News)
Global stockpiles remain high Large stockpiles could keep pressure on prices
• At the start of the year, the European Commission modified the intervention program to migrate from a guaranteed price to a tender-based system. The objective – to buy less powder, if any, in 2018.
• U.S. manufacturers’ stocks are rising also.
• The question is whether the selling of intervention stocks affects whey or nonfat dry milk/skim milk powder prices.
February 2018 IDFA Sweetener Colloquium 24
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
Jan
-15
Ap
r-15
Jul-1
5
Oc
t-1
5
Jan
-16
Ap
r-16
Jul-1
6
Oc
t-1
6
Jan
-17
Ap
r-17
Jul-1
7
Oc
t-1
7
(in
bill
ion
po
un
ds)
Global NDM/SMP Stockpiles
US Mfg Stocks EU Intervention Stocks
EU PSA Stocks
Source: USDA, European Comission
Could oil prices rise in 2018? Higher oil prices are increasing purchasing power.
Top NDM Importers in 2016
Rank Country Oil Nat. Gas
1 Mexico 12 16
2 Philippines
3 China 6 7
4 Indonesia 22 11
5 Russia 1 2
6 Malaysia 25 14
7 Algeria 18 9
9 Egypt 28 15
10 Thailand 33 25
11 Singapore
12 Brazil 10 34
February 2018 IDFA Sweetener Colloquium 25
$25
$45
$65
$85
$105
$125
$145
$165
$0.50
$0.70
$0.90
$1.10
$1.30
$1.50
$1.70
$1.90
$2.10
$2.30
1/6
/20
07
1/6
/20
09
1/6
/20
11
1/6
/20
13
1/6
/20
15
1/6
/20
17
(Pric
e p
er
ba
rre
l)
(Pric
e p
er
po
un
d)
NDPSR NDM vs. Cushing Oil
Prices
NDPSR NDM Cushing
Source: USDA, EIA
Topics
February 2018 IDFA Sweetener Colloquium 26
The backstory – milk on the rise
Cheese – the key to milk checks
More cheese – more whey
Demand for butter rolls along
Will milk powder remain low?
Milk & dairy product forecast
Macro economic impacts on dairy
February 2018 IDFA Sweetener Colloquium 27
NAFTA Negotiations
Volatile Equity
Markets
China’s Demand
New Zealand Weather
U.S. Immigration
Policy
Each of these could impact 2018 dairy markets
Wrap-up – pulling it all together Market volatility is unlikely to go away in 2018.
28 February 2018 IDFA Sweetener Colloquium
• Demand remains positive and is likely to continue to expand into 2018.
• But, given current milk prices there is a good chance milk could outpace demand at the start of 2018 and that could depress prices.
• With a tight butterfat situation globally, the market could struggle to find balance causing the latest bouts of volatility to persist through 2018.
• The United States is actively adding cheese capacity that has started and will continue to come on line through early 2018 with larger growth planned in the near future. Cheese price will rely on exports and higher domestic consumption. Additionally, more cheese will create more whey products.
• U.S. farm margins are not as strong as indicated by milk-over-feed ratios – that could have an impact late 2018.
Cheese & whey outlook
February 2018 IDFA Sweetener Colloquium 29
$1.150
$1.250
$1.350
$1.450
$1.550
$1.650
$1.750
$1.850
$1.950
$2.050
$2.150
Feb
-18
May
-18
Au
g-1
8
No
v-1
8
Feb
-19
May
-19
Au
g-1
9
No
v-1
9
(USD
$ p
er p
ou
nd
)
Cheddar Blocks Forecast
High/Low Cheese Fcst Futures
$0.2000
$0.2500
$0.3000
$0.3500
$0.4000
$0.4500
$0.5000
Feb
-18
May
-18
Au
g-1
8
No
v-1
8
Feb
-19
May
-19
Au
g-1
9
No
v-1
9
Feb
-20
(USD
$ p
er p
ou
nd
)
NDPSR Whey Forecast
High/Low Whey Fcst Futures
Butter & NDM outlook
February 2018 IDFA Sweetener Colloquium 30
$1.7500
$1.9500
$2.1500
$2.3500
$2.5500
$2.7500
$2.9500
Feb
-18
May
-18
Au
g-1
8
No
v-1
8
Feb
-19
May
-19
Au
g-1
9
No
v-1
9
(USD
$ p
er p
ou
nd
)
Butter Forecast
High/Low Butter Fcst Futures
$0.5000
$0.6000
$0.7000
$0.8000
$0.9000
$1.0000
$1.1000
$1.2000
$1.3000
Feb
-18
May
-18
Au
g-1
8
No
v-1
8
Feb
-19
May
-19
Au
g-1
9
No
v-1
9
(USD
$ p
er p
ou
nd
)
Non-fat Dry Milk Forecast
High/Low NDM Fcst Futures
Class III & IV milk outlook
February 2018 IDFA Sweetener Colloquium 31
$12.00
$13.00
$14.00
$15.00
$16.00
$17.00
$18.00
$19.00
$20.00
Feb
-18
May
-18
Au
g-1
8
No
v-1
8
Feb
-19
May
-19
Au
g-1
9
No
v-1
9
(USD
$ p
er p
ou
nd
)
Class III Milk Forecast
High/Low Class III Fcst Futures
$11.00
$12.00
$13.00
$14.00
$15.00
$16.00
$17.00
$18.00
$19.00
$20.00
Feb
-18
May
-18
Au
g-1
8
No
v-1
8
Feb
-19
May
-19
Au
g-1
9
No
v-1
9
(USD
$ p
er p
ou
nd
)
Class IV Milk Forecast
High/Low Class IV Fcst Futures
…and all of the things that make forecasting an exercise in futility
• Weather or natural disaster
• Geopolitical issues
• Supply outages
• Free trade agreements
• Significant changes in domestic demand
• Rising stockpiles of dairy products
• Substantial currency fluctuations
• Deteriorating farm level returns
• Herd health issue
• Significant slowdown/improvement in the global economy
February 2018 IDFA Sweetener Colloquium 32
February 2018 IDFA Sweetener Colloquium 33
Thank you