Whey Powder
Market, Supplier, Risk and
Competitive Intelligence

Industry Outlook & Drivers

Global Market Outlook on Whey Powder

• The global supply–demand dynamics scenario is stabilizing in both milk and dairy derivatives, as the oversupplied condition in the market is lightening. The regional differences and skewed trade dynamics are expected to govern the global price volatility in the near term
• Oceania is a key market, as it produces only 5 percent of the global milk, but contributes to more than 40 percent of the milk derivatives export market
• With the removal of milk quota system, Europe is expected to increase its production of milk and milk powders until 2018. The high output of dairy products will be directed to export, mainly to Asian countries

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

Interest Rate

• 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 Policies

• 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

Trade Agreements

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.