Demand Uncertainty Is Impacting Global Markets
Global dairy markets are impacted by ongoing factors on both sides of the supply and demand equation that spur volatility. Anything from changing weather patterns to political unrest can impact markets, which makes it even more important to gain access to real-time data to stay abreast of market changes.
The team of experts at Nui Markets is spread across the globe and keeps a keen eye on market activity to help both buyers and sellers stay in touch with changing market dynamics. Recently, Nui global experts were asked for their insights into current market situations for their respective regions:
United States
“It’s been a topsy-turvy year,” says Ron O’Brien, President of Nui Markets North America.
U.S. dairy markets have seen significant price fluctuations over the past several months as global supply fears and realities shaped markets. The risk of drought in Oceania from El Nino patterns coupled with a drop in production in Class IV regions in the U.S. sparked price increases based on supply concerns. Powder prices were higher, and butter prices reached record highs in late fall before dropping off. Cheese supplies are strong heading into the new year, and this, along with the potential reengagement of China in the powder market and Mexico continuing a strong effort in the non-fat market, should reduce price volatility.
“We should see lower highs and higher lows in the next couple of months,” says O’Brien. “But the world is upside down right now with many fears and more demand turmoil rather than supply turmoil right now.”
Oceania
Global trade has trended down over the last quarter of 2023 due to the softening of demand in China and other parts of Southeast Asia.
“If you look at what has happened in China, there has been a slowdown in whole milk and, in the last two GDT editions, a slowdown even in skim milk powder,” says Ashwini Law, Head of Region, APAC, for Nui Markets. “Obviously, there is an issue on the demand side happening. China and Hong Kong have been one of the biggest laggards in the region, and Southeast Asia has also underperformed.”
New Zealand dairy prices have experienced recent growth after bottoming out in August. It appears drought concerns did not come to fruition as September production was slightly higher than year-previous levels.
“Until we reach a new equilibrium where supply and demand balance each other out—which is six to nine months away—we will see volatility in the market.”
European Union
“It’s been a remarkably unremarkable 2023 so far,” says Anthony Gosler, Europe Dairy Ingredients Broker with Nui Markets.
The European Union (EU) is coming off market extremes started by the COVID-19 pandemic and exacerbated by the Russian/Ukraine war. Both completely changed the balance of imports and exports on the continent. Both events brought challenges in manufacturing facilities due to staffing issues that were a holdover from the pandemic and a cutoff in the supply of cheap Russian gas that caused drying costs to rise significantly.
Political uncertainties fuel uncertainties moving forward. The war between Russia and the Ukraine continues to strain export dynamics, while the rise of more right-focused political parties may impact historically stringent environmental policies. Loosening of these policy restraints could impact on-farm production and put more product on the supply side.
Mexico
“This year has been a particularly different year,” says Manuela Saldarriaga, Senior Business Development Manager for LATAM and MENA for Nui Markets. “We are seeing some lower import data, but expect these numbers to pick up. Hopefully, in December and January, we can continue with the usual rhythm of imports.”
Mexican imports of whole milk powder continued to grow in 2023 and are expected to continue into 2024 as consumer preferences continue to change.
“The biggest challenge for marketers in our country is to find the right price point,” Saldarriaga says. “There is a lot of speculation when microeconomic or geopolitical things happen that impact import decisions. The majority of the market in the second half of the year was just looking for direction after the price volatility we saw in the U.S.”
Brazil
“The situation in the past 12 months has been that Brazil has been completely dependent on world markets to cover its needs, mainly whole milk powders due to steep price asymmetry,” says Otavio A.C. de Farias, Director of Sales for Nui Markets Mercosur.“ And we are seeing a lot of resistance with dairy farmers complaining about those imports.”
Key to the animosity is the massive dairy product import volumes purchased at lower world prices that keep domestic prices paid to farmers low—but imported milk would not be the only culprit for lower farmgate prices. Lower consumer demand with resistance to pay higher prices for cheese, milk powders, and UHT put pressure on the entire dairy value chain in 2023. The Brazilian government is working to close the gap by implementing significant cuts to tax benefits offered to dairy companies that import milk powder or buy imported dairy products distributed domestically in an effort to make domestic products more attractive. This creates additional pressure on dairy companies that need imported products to meet production demands.
How customers use Nui platforms to their advantage
Regardless of the global region or market, buyers and sellers in the dairy market value price transparency. Dairy markets fluctuate at a moment’s notice, which means buyers and sellers must monitor market data in real-time to stay abreast of changing market dynamics.
“We see a tremendous value in assisting our suppliers to help them move their products abroad as well as giving the market price transparency on key destinations,” says O’Brien. “Our platform is helping link up our customers on the buy and sell sides in an organized, time-efficient way that benefits both.”
With the Nui Markets platform, buyers and sellers can see bids and offers in real-time to make more beneficial transaction decisions. Everyone can literally be on the same screen and compete for sales or purchases at the same time.
“On a Nui platform, dairy companies can access their markets and make sure they buy or sell at the very best price possible through our features for, procurement tenders or sales opportunities,” says Farias. Recently, a tender was run in Brazil for a multinational company, resulting in the purchase of 300 metric tons of whole milk powder from Argentine and Uruguayan suppliers for delivery in the second quarter of 2024. “We could easily transparently match the prices and markets moving in real-time on the screen to help make the deal happen.”
This digital platform is unique to some markets and has the ability to disrupt traditional purchasing processes.
“In Latin America, buyers and sellers are used to just looking at the CME as a way of indicating price,” says Saldarriaga. “Nui Markets allows these individuals to now make electronic bids and offers online, which gives them a tremendous amount of purchasing power.”
The transparency offered to buyers and sellers through real-time market access helps build security into the transactional process. It’s easier for buyers to make purchasing decisions when they have confidence in the prices being offered, and sellers can build that trust into their offering. The Nui Markets platform facilitates that trust.
“Over the past five years or so, we’ve seen enormous price hikes and dips in the market, which is great if you’re a trader because they thrive on volatility,” says Gosler. “But when you’re producing biscuits, you want to keep the prices on the shelves stable for consumers, and you have to be a little bit smarter. Our tools provide a great solution for that.”
As market dynamics evolved in 2023, so did the Nui Markets platform, introducing procurement tenders and new risk management tools like index-based trading to enhance price discovery for buyers and sellers. As the ebb and flow of markets continues, the Nui Markets platform will continue to develop features to help all clients achieve better trade outcomes and gain market confidence no matter what changes occur.