Takeaway

The presenter argues that a structural shift in China's domestic dairy processing is collapsing its demand for imported skim milk powder (SMP), turning it into a domestic byproduct. This contrasts sharply with strong demand for butter and cheese across China and Southeast Asia, driven by a recovery in the food service sector. The key takeaway is this growing divergence between SMP and butterfat markets in Asia.

What the presenter said

• Despite positive year-over-year growth in general dairy demand, China's skim milk powder imports are at multi-year lows on a 12-month rolling basis. [00:57, 01:37]
• This is not due to falling demand, but a shift in domestic processing; Chinese plants are producing a more diversified portfolio, including cream and butter, to avoid losses on whole milk powder. [01:18]
• As a result, skim milk powder has become an excess byproduct in China, and its total consumption is shrinking. Some major processors are even looking to export dairy ingredients. [02:30, 03:07]
• In contrast, Chinese butter imports continue an upward trend, supplementing rising domestic production. [03:37]
• Dairy demand in Southeast Asia is stronger than expected, with a tourism-led recovery boosting bakery, confectionery, and food service sectors. [06:14, 06:28]
• Countries like Indonesia, Vietnam, and Malaysia are importing significantly more butter and cheese than last year. [06:51]
• Some Asian end-users are concerned about potential product shortages, which could boost short-term prices. [07:42]

Trade ideas

None stated. The presenter's market view is that Chinese skim milk powder (SMP) demand is structurally weak due to a domestic shift in processing, while butter and cheese demand remains robust across China and especially Southeast Asia.

Levels and data cited

• Chinese Skim Milk Powder Imports: At multi-year lows on a 12-month rolling basis (Source: Chinese import data).
• Chinese Butter Imports: Show a continued upward trend (Source: Chinese import data).
• Southeast Asia Butter & Cheese Imports: Significantly more than last year (Source: Southeast Asia import data).

Risks and what would invalidate this

• The presenter identifies El Niño as a risk, noting it could reduce milk production in key Southern Hemisphere producers like New Zealand and Australia.