Fonterra announced today in a press statement that, as of now, the Fonterra Co-operative Group has increased its offer of quantities for whole milk powder (WMP) and skimmed milk powder (SMP) for the next twelve months. The offering of WMP will increase by 20,000 mt over the coming 12 months, while the SMP offering will increase by 5,000 mt during the same period. The total quantities of milk fat (butter and AMF) offered for the next 12 months remain unaltered as of now.
With the southern hemisphere moving into the milk season, market sources expect this to be a reaction to lacklustre demand from the Chinese market through the past six months and further weak demand expectations for WMP during the coming six months. China, New Zealand's biggest trade partner for WMP, has reduced WMP imports notably thus far in 2023 due to increased domestic production; this trend is expected to continue during the coming month. With export opportunities in China decreasing, New Zealand exports are looking to alternative destinations.
One market source stated, “we have heard that there is still older stock of WMP in New Zealand as well that needs to be moved before the new season starts; we expect that New Zealand will supply many key export destinations during the coming months due to its low prices levels and ample supply situation.”
A second market source commented, “the increased volumes on the GDT [Global Dairy Trade] are not really linked to any stocks in our opinion, but rather caused by weak demand expectations; we have heard that the existing sales are below expectations and in order to ensure a continued flow of product, this is a cautious step to avoid a stockpile up.”
Market sources across the globe expect that the increase in offer volumes will weigh heavily on the international dairy market, notably limiting the export opportunities for EU and US suppliers. With increasing competition in the milk powder markets and already low margins for EU and US producers, multiple market sources have indicated that it seems likely that cheese production will increase, as processors are likely to channel more milk into the cheese facility to ensure a higher payout.