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Hoogwegt Dairy Spew
Hoogwegt Dairy Spew
Episode 17 - Year of The Dragon
In this first episode of 2024, we ring in the Lunar New Year of The Dragon!
Join us as we discuss topics like China, Red Sea Disruptions, WPC Markets, Whey Markets and more!
To our listeners celebrating the Lunar New Year, 恭喜发财！
[00:00] Val: Kong Xi Fa chai Long yang kwela.
[00:04] Boh: Kong Hai fat choi Long Ma ting.
[00:07] Alvin: Sen long fei fongwu.
[00:11] Tom: Bing bing an an it's not bad, right? Peace and safety. It's a typical Singapore thing. Stay safe, stay vigilant, stay healthy.
[00:25] Val: It.
[00:29] Charles: Longma Jinxon.
[00:46] Val: Everyone, welcome to the latest edition of Hoogwegt Dairy Spew. It's been a couple of months. We've been busy. Lunar new year around a corner. We are recording today's episode, and with me I have Tom Hi Val , Charles Hi Val, Alvin Hi Val, and Boh Yo Yo yo. So, yeah, welcome to this latest episode of the podcast. Today we're going to be bringing you quite a few topics of interest with all these questions coming in from our listeners, asking about things like China, the rate sea disruptions, how are the ingredients doing, WPC markets doing, how is demand, how do we see things going forward? What's going to happen after the lunar festivities in China, et cetera, et cetera. So it's going to be a fun filled podcast episode. So thanks for joining us. And here we go. So I guess with Lunar New Year just around the corner, everybody is thinking about, so how's China doing? What's happening in the land of the dragon? And with us, we have our very own cute dragon, Charles, who was born in the year of the dragon. So very apt for him to start and kick off this discussion. So, Charlie, maybe just do a quick roundup on what's happening in China.
[02:13] Tom: Yeah, sure.
[02:14] Charles: Thanks, Val. Actually just got back from China myself a week ago, so pretty good timing. What we see in China, at least from the latest data, is that they have not been as active in the last months of Q four in buying homemade powder. That's quite consistent with also, I think, over the last few events, what we've seen in participation numbers out of China. Right. I mean, typically, anecdotally, we always say China should be 50, 60% of GDT. I think in past events, closer to that 30, 35% level. And fortunately, I think for GDT, Middle east have been stepping up to the plate, taking a bigger share of buying than usual. I think in China, December, January has been built as the highest season of, let's say, end user consumption because everyone's producing their final products in time for, of course, Chinese New Year, or we call it the spring festival in China. I think so far, the demand in December and January have not been super exciting, I have to say, from the local sales perspective. But in spite of that, we've seen a rising GDT, right? We've also seen, I think, now expectations of future gdts. If we look at futures well above 3300, if we look at the last GDT, it's slowly getting there. And if you even look at c three, c four, c five, which are kind of indications of where the next GDT in February might end up, is already well above 33. I think the question is, it's no doubt that these levels are pretty supported. It has been pretty well backed by physical deals as well. Although given the fact that during the highest demand season, it wasn't that exciting. With China being quiet in the next three, four weeks because they're really close for a spring festival, what might happen to the market? I think that's the biggest question. I think if you asked a local in China, the answer would be everything depends on what kind of consumption levels they see during the spring festival itself. No doubt all kinds of families will be going back to have reunions and consume all kinds of products, including dairy products. Yeah, remains to be seen. One thing that obviously everybody knows as well is that in New Zealand, homemade powder production will start to taper off. Right. We are entering the shoulder of the season. December numbers were around expectation 2.5% up. Remains to be seen what happens from here. One thing I do note is that there is less and less talk about weather, which means that it may not be a factor. I think the other interesting thing probably to speak about is that whole milk powder spread to skimmer powder at the moment is pretty big. Even if we talk about valorization, there are more and more producers in New Zealand talking about how home equator prices are getting a little bit more interesting. And that if this sustains and skillmakwater continues to be stable, that there might be some producers willing to switch. It's not yet happening. Don't think it will happen in big scale with especially guys like Fontera. But that bears watching as well. With regards to that skill powder spread. If we ask the big guys, let's say the big end users who use both products and really ask them the question, which one you think is more likely to happen for homework powder to come off to come closer to skimmed or for skim prices to go up? A lot of the consensus have been pointing towards skimmer powder probably rising. What that says to me is that, okay, despite local milk production in China, homer powder has a pretty decent demand. And maybe that's backed by the fact that in China, there's just not a lot of stock. As I mentioned at the start, China have not been importing that much product.
[06:18] Val: Yeah, but also just looking through what's happening in China, it's also quite interesting because products like Sweetway powder seems to be a little bit more active in terms of domestic demand. So can you maybe talk a little bit about that?
[06:35] Charles: Great point. Prices in China have been improving. Demand has been pretty good. I'm really not sure if that's because of whey powder being used in different, let's say, skus than the general homeopower skimmer powder. It could be because technically for homo powder and skimmer powder, the locals can use local milk to replace some of the recipe. Whey powder is just something they have to import. I think it's a little bit of a lagging situation with Europe. We knew that a couple of months ago during the low season, Poland was not very active in producing whey powder. As a result, probably sales were not as high as usual and therefore local stocks are not that high. And if you add a topic that we will, I'm sure, talk about later, the Red Sea disruptions. You can imagine as an end user in China, for a product that is stable in pricing, like whey powder, they just want to buy it. Now.
[07:39] Val: I think that's a good bridge into a hot topic of the month or so, the Red Sea disruptions. And we are seeing a lot of liners bypass the Red Sea because of the disruptions. And that basically penalizes freight charges with a surcharge of between 500 to above 1000 usd per container, the voyages between ten to 14 days longer, minimally. We are also having situations whereby the surcharge is potentially pricing out certain products from certain origins. So maybe, Alvin, can you talk a little bit about what you see? How is this rate C disruption affecting how your buyers are deciding to buy and when they should buy?
[08:26] Alvin: So regarding the rate sea situation, I think most of the customers, they're actually underestimating the potential issue because right now what most people are talking about is only like say 2030, $40 increment per ton due to the rate sea. But I feel that the potential impact is much more than that because it's not just because of the increase in cost, it's also the potential delay. Right now we are talking about ten days, but if the full impact come into flotation, the delay can be up to like two weeks, three weeks, four weeks. Yeah. So most of the shipments from around the world, including us and Europe, they have to go around Africa, which can cause a big delay to a lot of shipments. So this can potentially impact the production planning for a lot of customers. In Asia. So we don't see the full impact yet. But if this thing really come true, then the impact could be really more than what people are expecting. So it's always good to plan early, because right now what I'm seeing is a lot of customers, they are still buying hand to mouth. Yeah, it can probably work the past few months, but with this potential impact, I think I suggest customers to buy much earlier, hit probably even one month buffer.
[09:42] Val: Yeah, and it's true, because I think in episodes before, we did mention that buying behavior has somewhat changed due to a few factors. One, namely the fact that financing stock has been expensive. So a lot of customers have grown accustomed to not buying as much stock and keeping it in their warehouse because it's expensive to finance it. Having said that, we are in a situation whereby stocks might not be sufficient. And somehow, if there is one delay from one supplier, another delay from another supplier, certain customers might find that, hey, I'm suddenly short. And let's not forget, with lunar New Year festivities around the corner, a lot of freight forwarders and even the pots might be running low in terms of manpower. So these are all kind of cumulating to some sort of a small boiling point, in my opinion, for the next one, two months.
[10:41] Charles: Just to add a comment from the skim milk part of perspective, obviously, because of all these disruptions, it further highlights that Oceania is kind of a preferred origin now for Southeast Asia and China. It has been anyway because of prices, but because of logistics, it makes more sense whether that affects the freight rates out of Oceania to Southeast Asia. We're not seeing massive increases yet, but it does make Oceania more attractive, which I think going into the tail end of the New Zealand season could be a combination that might support prices in Oceania. I think this bears watching, because in order for skimmer powder prices globally to rise, the first thing that needs to happen is New Zealand prices needs to go up. So just highlighting that we might be in a different market in, let's say, a month from now, it all depends as well how fast that increase happens, because towards April May, you start to see more milk in the northern hemisphere. So just something to watch. But I think the key point has been pretty much highlighted. Yeah, be more careful and plan with more buffer stocks.
[11:45] Tom: I think that's also exactly the reason why customers are not, in my opinion, caring enough yet about all the supply chain disruptions. Because they have been reaching out to New Zealand, Australia, for their whole milk powder, for their fats, for their buttermilk powder, for their skin, milk powder, obviously and not been exposed yet to all those potential supply chain issues. But if you zoom out a bit, and if you approach it from a geopolitical point of view, then things seems to be escalating pretty badly in the Middle east. There's that rising tension, of course, between involvement of Iran. And also another factor, which we can't deny, is that Donald Trump will be running for presidency, of course, and he most probably will be the candidate for the Republicans. That, once again, in my opinion, won't be helping to avoid any kind of escalation. And it's not only about like that twelve days of additional sailing time that Europe and us is facing. If you go instead of fighter Red Sea through Cape of good hope, it's about everything else. Supply chain only is working if everything is predictable. And with a delay, with a changing environment, nothing is predictable anymore. And if nothing is predictable anymore, you will see worse disruptions in your supply chain. And once again, I think that buyers in our region, in Southeast Asia are not seeing the potential consequences of it yet, because of the fact that they have been, so, for good reasons, exposed to New Zealand, to Australia. But logically, that will be drying up in the upcoming months. So take a look at it and don't underestimate it.
[13:48] Val: So, yeah, I think we've had a good portion of discussions on our commodities, but over on an ingredient side, Bo, what are the WPCs doing? I think it's an interesting read as compared to what we see on the commodities.
[14:06] Boh: Yeah, thanks, Val. I think the WPC is a very interesting product group that we see over the last few months, where other products have been more of a stable or downtrend, while WPC has been moving up and almost back to the highs where we see one and a half, two years ago. So I think the big question that I always get from all the buyers is, is this the peak and where will we go moving forward? So I think the main difference compared to the previous spike and then immediate crash within the four or five months back to the initial levels, is basically that demand has increased over the last two years. There's firstly, greater emphasis on proteins. Within the Southeast Asia region, there are more and more companies and demand that sprung up over the last one and a half, two years. There's more and more inclusion of proteins into different habits and diets. So from a demand standpoint, that's where we see has been coming up. And secondly, from a price standpoint, the customers are a bit more accustomed to the higher prices, of course, no thanks to inflation that has been up over the last couple of months and it sets a new standard in terms of the price point that they are willing to pay and that trickles back down again towards the purchasing and the price for everyone they can make. But of course, from a producer standpoint, a lot of the cost has also increased. So basically what we see now is whether it will go back to the average price of, let's say six, seven usd in a very low or stable time, versus could it be a new normal where it will be probably eight, nine, or is it nine or ten usd? So that's something to note for the buyers that are thinking whether they would still stay on the sideline and await this rise in prices and when it crashed back down, then they will step in, because that really is difficult to say whether it will go back to initial levels.
[16:28] Val: Thanks, Bo. But how about the other ingredients? How about WPC 35? It's also something that affects the waste stream and your other ingredients.
[16:37] Boh: Yeah, just a short one on the 35. Basically that tracks more towards the skim milk powder basis. So with that we basically looking more towards that direction. Yeah, look at skim milk powder and then you, depending on situation, could be a bit of a slight discount to that. On the others, just focusing on the casein Casey nates, that market has also started to gain a lot of attention and rising demand over the last one month. It starts probably around just before Christmas. There's quite a big demand that came in and that brought up prices from one of the low point. Then after new year, I think that's the period where most producers and buyers are back from their long holidays. And when they see that first price has already moved up, they quickly assessed the outlook and demand and decided to step in and that really pushed up prices again. And now we have quite some demand that's still ongoing. And basically the note for the buyers out there to just pay attention to this and if needed, probably you can consider to cover a bit further out and see how market moves with that.
[17:46] Val: Actually what's interesting is WPC is also very intertwined with the stream of things. So just a quick summary of what's actually happening on Sweetway. Powder side. Well, Poland has been perennially a cheaper producer, a cheaper alternative against western european suppliers. But however, we've been seeing in recent months that the prices coming out from Poland is not that much cheaper than those from France or even Germany. And it's interesting because right now what we see is even though milk production in Europe isn't as good, we do see very good cheese demand. So with that, we still get a lot of milk, liquid milk, being apportioned and valorizing very well into cheese. So when you do produce the cheese, you end up with your whey concentrate. And with that, the producers have a decision to make. Do I actually use the whey concentrate to produce the WPCs that, as Bo has mentioned, has been doing well, or do I use it to produce soup? Whey powder. But there is always this decision making to be made, because when you do the WPCs, you end up with other derivatives, like your lactose, like your permits, which in this current market, the demand hasn't been great and prices have been very dampened. But if you produce a sweetway powder, that's the end of the line. You produce it and that's your final product. You don't have extra derivatives to deal with, to store, to spray dry. So what we are observing is that for suppliers who can actually produce WPC, be it in the US or be it in Europe, those that can flex into WPCs are doing so because the prices that they are able to sell those products at is just a lot better than what they would otherwise sell. Just sweet whey powder. But there's also a portion of producers that simply cannot. They do not have the ability to flex between the two products and they will still receive that liquid way concentrate, which is coming from the cheese production, and they will still have to spray dry it to sweet whey powder. So Sweetway powder as a product is very brand specific. It really depends on the brands that you're looking at. So what we are observing also is that the prices between a brand that is very popular and a brand that is not so popular, the price gap can be huge. We are looking at €100, minimally. And the demand just runs different because certain buyers and buyers simply just need that certain type of seaway powder. So that's quite an interesting development that we are seeing in the way market. I think we have quite a packed calendar in terms of trade shows for Q one as well. I think a few of you will be heading over to some trade shows. Can you all share the details? Elvin, I think you're very excited about golf food.
[20:58] Alvin: Yeah, I'll be celebrating Chinese New Year in Dubai, so we'll be having golf food from the 19 February to 23rd. Booth number is B 245. So if you are there, please look for me. We can have a chat.
[21:11] Charles: And for myself and Tom, we'll be in and Bo as well. Actually, we'll be in Shanghai for the FIC food ingredients China. On 20th to 22nd March, we have a booth with Pacific dairy ingredients, our chinese operations. I don't know the booth numbers, but it's located pretty near this one small supplier called Fontera. I believe we are neighbors.
[21:32] Val: So if you guys want to meet and greet the fine people of Hogweck, you know where to find us at Gaufood as well as at FIC. So hope to see you there. So, guys, with all these topics that we've discussed today, how do we summarize this whole situation from a demand perspective?
[22:06] Tom: I think it's a very good question though, and a very valid one, because if you take a look at us and Europe, for me, the only reason that prices in Europe and us were heading northwards of the last couple of months was because of supply. There wasn't enough supply. That was the main issue, it wasn't demand driven. Now we're heading into the season in us, into the season in Europe, so supply shouldn't be an issue anymore in northern hemisphere. So I think the valid question to ask is, will demand kick in in time in order to make sure that market is like that, the forward looking indicators are justifying the prices that market is expecting. I have my doubts about that. Once again, I do believe that Red Sea disruption definitely could be playing a significant role, and that could be very bullish for price direction in export markets. I think that could be leading towards a huge gap between feed markets, for example, in Europe for whey powder, and food markets on the export side in Asia also believe that customers over the last couple of months, they had zero reasons to stock up because prices were pretty stable. New Zealand, Australia, were very competitive, remained very competitive. Outlook wasn't too bullish. Logistics, it's the backyard of Oceania, of course, so it's only two, three weeks of sailing and you have your product, money is expensive. So I don't believe that anyone in Southeast Asia is sitting on huge stocks, except maybe of some multinationals. But I think that also the multinationals have been struggling with their demand forecast. So from that perspective, yes, demand should be picking up, because no one is, in my opinion, no one is covered for a longer period. But the big question is, will that increase in demand stabilize markets or even increase price outlook? I have my doubts.
[24:17] Charles: Well, we're in the topic of demand. I think one of the things that can support it is that the feds are finally saying, okay, we've had enough of rate increases, maybe this is the year of rate cuts. Of course, markets are pricing some of that in. That is usually supportive for the whole macro picture. Some people call it the macro summer. And in the macro summer, there's no better asset than buying bitcoin.
[24:43] Tom: How many more days to the healthing? Two months.
[24:47] Charles: Two months? Exactly two months. I think 70 days or something. But etfs are out. So if you weren't sure about how to buy before this, go to ishares fidelity. There are plenty of ETF providers out there.
[25:00] Val: Shameless plug for your bitcoin.
[25:02] Charles: This is not financial advice, but it's a financial personal interest.
[25:09] Val: This is not a paid advertisement.
[25:11] Charles: Do your own research.
[25:14] Tom: Pretty technical. Give us a ring. We always would like to have a chat about the crypto market, guys.
[25:21] Val: It is a tradition to actually greet people during the lunar new year with only good things. So having all these discussions about prizes, about demand, about disruptions, we need to end the show with only the good stuff. So here's wishing everybody. Long yang kwaila long maxing poopu Kao.
[25:41] Charles: Shen Long Yan xing Tai sunny Singrong huda long ma jingson bing bing ang sifatai, hong bao nalai.
[25:51] Tom: Okay, let me this is what I tried to say, guys, again.
[26:19] Val: And if you guys can't get enough of us, we do have a second podcast. It's called the Hoogwegt Market Moo. You'll be able to find that in Spotify as well. And we also have a monthly newsletter, Hoogwegt Horizons. So if you want to subscribe to it, go to hoogwegt.com. You'll be able to find a subscribe button, or you can approach one of us and we can hook you right up.
[26:40] Tom: One more thing, Phil. If you're not signed up yet for the MyHoogwegt platform, please tell your logistics department to do so because we improved it. And you will receive all your documents, invoices, et cetera, et cetera, live track and trace via MyHoogwegt. And also via MyHoogwegt platform, you can find that Market Moo.
[26:58] Val: Okay, nice. So, yeah, these are all the updates we have for you. Thanks for joining me, guys, this morning to record the podcast. So this is Hoogwegt Dairy Spew, over and out. Thanks, guys.
[27:10] Charles: Thanks. Bye.