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Will Russian embargo impact whey and lactose prices?

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By Mark Astley+

02-Sep-2014
Last updated on 02-Sep-2014 at 14:56 GMT

Will Russian embargo impact whey and lactose prices?

While the impact of the Russian embargo on whey and lactose exports is “limited”, the price of these ingredients will likely be affected, says 3A Business Consulting. 

Speaking with DairyReporter.com, Tage Affertsholt, partner at the Danish food and beverage business consultancy, said the Russian embargo on cheese from the European Union (EU) could indirectly impact whey and lactose prices.

On August 7, Russian Prime Minister Dmitry Medvedev announced a since-amended, one-year ban on the import of beef, pork poultry, fruit, vegetables, cheese, and milk from the EU, US, Australia, Canada, and Norway.

EU Member States exported around 250,000 tonnes of cheese worth approximately €980m (US$1.3bn) to Russia in 2013. But what will that mean for whey and lactose? Affertsholt queried.

“The effect will be minimal,” said Affertsholt. “Only about 15,000 tonnes of whey and 15,000 tonnes of lactose is exported.”

“But if skim milk powder prices were to come down, it would affect whey prices.”

Negatively impacted

Assuming this surplus cheese milk is converted instead into milk powder, Affertsholt believes the implications would be “twofold.”

First, skim milk powder (SMP) prices would be negatively impacted by the additional volume, he said. 

Secondly, the subsequent reduction in available liquid whey from cheese production would “provide an upward pressure on whey and lactose prices."

“As the basic whey product prices, such as whey powder and WPC35, tend to reflect the SMP prices fairly consistently, the prices for whey products are simultaneously affected negatively by SMP future prices and positively by less supply of liquid whey,” he said.

Specialized whey products, such as demineralized whey protein, WPC80, and whey protein isolate (WPI) will “hardly be affected, apart from the more general influence of supply and demand,” he added.

Affertsholt declined to estimate the exact impact, but said that "for the next six to nine months the picture is somewhat negative."

“I have come to the conclusion that predicting prices is a dangerous ballgame," he said.

“Becoming a global business”

According to 3A Business Consulting's latest report on the global whey and lactose markets, the WHEY BOOK 2014, the EU and US are the largest producers and consumers of whey products.

It valued the whey powder and whey proteins market at approximately US$9.8bn (€7.5bn) – a figure it predicts will reach around US$11.7bn (€8.9bn) in 2017.

The global market for lactose, pharmaceutical lactose, and permeate powder meanwhile topped US$2.3bn (€1.75bn) in 2013, and is expected to increase to in excess of US$2.8bn (€2.13bn) by 2017.

In line with this growth, driven in large by demand for infant formula, sports and clinical nutrition product, “at least” US$2bn (€1.75bn) was invested in lactose and whey production in 2012 and 2013, said Affertsholt.

The key market trend identified by 3A Business Consulting in its WHEY BOOK 2014 report is consolidation.

This trend, according to Affertsholt was exemplified by the acquisition of US firm Davisco Foods International by Canadian dairy cooperative Agropur earlier this year, and the strategic alliances secured by Fonterra in Europe.

“It proves that this market is becoming a global business,” Affertsholt concluded.

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1 comment

Less EU Cheese = Less Whey Supply

250,000 MT EU cheese not going to Russia means a significant reduction in cheese being made in the EU and its more valuable component - the whey category. The baby dragons born in 2013 are now starting to eat significant volumes of infant formula containing WPC80. The relaxation of the one child policy in China, according to some estimates could bring an additionl 10 - 16 million births per year. Lower feed ingredient costs for animal feed sector and improved feeding margins bode well for demand for sweet whey and whey permeate. The market outlook for the whey family looks quite good, except for lactose which is in over supply mode.

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Posted by Peter Gutierrez
03 September 2014 | 08h22

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