Global Market Outlook on Dried Whey Powder
Complexity of dairy market is high, due to standardization and multiple (38) co-products. Separation process produces a skim cream portion that is usually 40 percent fat. This cream portion is used in the dairy fats production process. Whey, a by product of cheese and casein manufacturing process, is further processed to produce generic and high value derivatives
Whey Value Chain Analysis and Derivatives
WPI at greater than 90 percent protein and WPC with protein levels ranging from 34 percent to 90 percent are the most functional niche product ranges among all whey ingredients. While DWP, Permeate, and SWP are more generic in nature.
Whey Processing Overview
Evaporation and filtration play a vital role in the process, due to the presence of high water content in whey (94%). Initial composition of whey depends on cheese type. Along the process, whey products’ compositions are subjected to changes, based on treatment methods.
Whey Value Addition
Functionality and value of whey products improve with concentration levels. Sweet whey powder at bottom of the pyramid is more commoditized, hence, experiences highly volatility in prices, majorly driven by US, EU and NZ trade trends.
Sourcing Recommendation For buyer
Whey powder is a commoditized product with presence in both spot and financial markets (CME futures and EU futures market). Major buyers in the US and EU adopt a mixed procurement strategy by procuring partially from suppliers and the rest through commodity futures market. Buyer can adopt suitable hedging strategies to make more cost savings.
Global Market Dynamics
Global net supply was around 0.1 MMT (Undersupplied) in 2016, where ~90% of total supply is from EU and the US. Global production is growing ahead at a CAGR of 1.8%, closely followed by a demand growth at 1.73%. Future outlook of whey market would be balanced or remain undersupplied, largely depends on secondary derivatives’ market.
Fundamental Analysis: Macro Factors-US
Gross Domestic Product
- Rise in interest rates and strengthening of the US dollar will drive the 2017/18 GDP growth
- Strong consumer spending, driven by wage and employment gains, buoyant stock market, are expected to support the economy in 2017
Consumer Price Index - Inflation
- The inflation is expected to average out at 1.32% in 2016 and at 1.25% in 2017
- The Fed has a 2 percent inflation target and tracks an inflation measure, which is currently at 1.7 percent
- Federal Reserve is expected to announce an increase in the target range for its federal funds rate to between 0.5% and 0.75% up from 0.25% to 0.5%
- Dairy producers enrolled in 2016 Margin Protection Program for Dairy at USD 6–8 margin trigger coverage level will receive payments 0.23723–0.23723 USD /cwt.
- This is the highest MPP rate announced since 2014. The payment rates are expected to increase, favoring the producer margins.
Crude Oil Price
- Prices are likely to be sustained at ~USD 50/barrel due to production caps implemented by OPEC
- Increase in crude oil price may increase the dairy purchasing power of oil producing countries
- Increase in crude oil price will increase the price of corn (alternative energy source). This will reflect in feed & energy cost of dairy production
As US implements TPP:
- “U.S. dairy exports could grow by USD 131.2M/annum”- American Farm Bureau Federation
- “Annual growth in U.S. dairy exports will be around USD 150-275M/annum” - OCE – VT-CAT analysis compared to the non-implementation of TPP
Whey Products: Supplier Production Mix Preference
Suppliers’ preference to shift from whey powder production to secondary derivatives production is evident with the 5% decline in dry whey production during 2010–2016, which has been channelized to lactose production. Increasing number of plants for lactose and WPI production also substantiate the same.