G & K Sales, Inc.

Serving The Global Food Industry

Quite Simply

We buy and sell surplus and obsolete ingredients. 

When Does the Market Recover?

The start of 2015 was questionable as China’s demand was easing and world economies were weak. Sanctions against Russia (extended to March 2016), and in return Russian Sanctions against other countries, just added more concern to a threatened dairy market.

Economically the world was watching the Russian economy collapse (current forecasts suggest the worst is yet to come), Europe’s poor economy remain stagnant, China continue to slow down, a strengthening dollar in the US, and falling oil prices threatening economies in South America and the Middle East; none of which would support growth in world demand or strong production and supply.    

There were a few optimistic considerations starting the year: 2 consecutive years of high dairy prices pushed some countries out of the buying arena but this years’ lower prices would allow smaller countries back into the buying arena. The US economy was getting stronger and the falling oil prices were expected to offer US consumers some comfort and more money to spend elsewhere.

Not long into 2015 demand tapered off and nonfat and whey protein prices began to slide; markets were in trouble and warehouses began filling with inventory. There was a confusing and unwarranted spike in prices back in April / May and some chatter of inventories being shuffled out of the sight of statistics awareness but that spike was short lived and prices began falling again. By August Nonfat dropped as low as $0.72/LBS and finally attracted some buyers. It helped reduce some of the growing inventory but not enough. Even at that low price no one was taking a position on large volumes. That spoke loudly of the discomfort and uncertainty of the market future.

In the beginning of September prices rose again but this time schools came back in session, the holiday season kicked in and Fonterra announced that they were reducing their production numbers for the 2015/2016 season 5 – 8% (based partly on drought and partly on pressure from reduced demand), Nonfat numbers rose to as high as $1.07/LBS but once again they are slowly falling.

The truth is that there’s no good reason for an increase in the prices with the current supply and demand situation. Production numbers are up, inventories are up and demand is the weakest we have seen in years.

To put it in perspective; Each year since 2007 the world dairy industry has been building; adding many new production facilities in order to keep up with world growth primarily prompted by China’s growth. China’s growth was exceptional and seemed unstoppable. The industry added new cheese plants, Whey protein plants, MPC plants, and Co-Op’s were put together to keep up with the growing demands. Export from the US increased dramatically; as much as 17% of production was being exported, thanks mostly, to China. Every year world production has increased in order to keep up with the new world demands but in 2015 China all but stopped buying.

The production numbers have been strong with NZ’s 2014/ 2015 production up 8%, 2015 EU numbers up 1% (we need to pay close attention to the EU since there is no longer a cap on their production; that along with a weak Euro could attract buyers), Australia up 2% (looking strong going into 2015/2016 season), US up 2% but the biggest change in 2015 is the loss of China’s demand. China’s dairy imports dropped better than 30%.

China’s economic growth has been slowing down and is expected to continue slowing down. Economic growth in 2015 has dropped to about 6.8% which sounds like a solid growth number but it’s down from 7.2%, Which is down from 7.8% which is down from 9.5%. 2016 promises another drop to about 6.5% according to Reuters. It wasn’t long ago that China’s growth was double digit and all that growth has created a new China.

According to Credit Suisse China now has the largest middle class in the world with incomes between $50,000.00 and $500,000.00. They are expected to have about 2.3 million millionaires by 2020. Their economy has grown to rely heavily on the consumer as they continue to transition from an export supported country to a consumer supported country but as their economy struggles the consumers aren’t spending as they had been; instead they are saving where they can. The high prices of dairy over the past 2 years has pushed consumers to cut back on dairy consumption.

Meanwhile; China is still trying to empty warehouses of dairy ingredients after having imported much more than they needed. On top of that their own domestic dairy industry has been growing and production in China has risen 4% this year. China is not expected to be looking for product until maybe Q2 2016. Even when China comes back to the Market Most people are not expecting them to come back strong.

The market is not expected to be back on track until the mid of 2016 when the slower production numbers and the current inventories reach a better balance with demand. We will continue to watch the variables that effect both the supply and demand and tell you what we see and hear in the next report by the end of November. 

©2015 G&K Sales, Inc.

800.336.1333

site design by RealDealJLG designs

Privacy Policy