Rabobank GDT Analysis - Event 261

Wednesday 3rd June 2020

GDT results and commentary

GDT prices nudged 0.1% higher in event 261, showing mixed results as buyers from across the globe are in different stages of preparing for the next phase of demand as restaurants reopen and the “new normal” gets underway. This event reflects some of the variations across geographies and product specifications. Most prices fell through event 261, cheese prices -5%, butter -4%, and SMP -0.5%. Meanwhile, WMP and BMP were up 2% and 9% respectively. Geographically demand from the Middle East and Africa saw a noticeable reduction -20%, while every other market saw increases. North Asian demand increased the most at 54%, and accounting for 50% of total volume won.

Conditions in China generally continue to improve economically, which typically leads to increased demand for dairy. However, Rabobank estimates that significant domestic stockpiles of milk powder remain in China due to spray drying in February resulting from supply chain constraints in processing fresh dairy products at the time. These stocks will likely pose a demand risk for imported powders later in the year.

This event also markets a turning point in offer volumes that were 31% higher than the previous event. This demonstrates robustness in demand particularly for WMP as markets reopen and supply chains are refilled. However, while distributors might be refilling their pipelines, true consumer-level demand remains opaque around the globe. Rabobank has calculated that historically for every 1% increase in the U.S. unemployment rate, domestic dairy demand falls by 0.27%. Given the job losses experienced throughout the world a similar relationship may apply elsewhere, resulting in weakened consumer-level demand through 2020.

Lastly, the gap between Oceania, Europe, and U.S. prices has closed since the last event, a combination of European and U.S. prices rising and Oceania prices (apart from WMP) falling. Oceania’s average premium of WMP, SMP, cheese, and butter fell to 24% down from 39% at GDT event 260. We anticipate this gap to continue to close going forward, with pressure applied primarily to the downside for Oceania as offer volumes continue to increase through 2020.

Key Results

AMF index down 2.9%, average price US$3,960/MT

Butter index down 4.4%, average price US$3,631/MT

BMP index up 9.4%, average price US$2,344/MT

Ched index down 5.3%, average price US$3,520/MT

LAC index down 4.1%, average price US$1,279/MT

SMP index down 0.5%, average price US$2,530/MT

WMP index up 2.1%, average price US$2,761/MT

Source: Rabobank

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