High Heat in SMP and ghee prices- Is it real or a false positive ?

I hope everyone had a great festival time in last fortnight. This Diwali as expected we saw the return of smiles on the faces of consumers as well as shopkeepers. The markets were illuminated with old hustle and bustle. The sale of sweets also touched a new high. The media however did their routine job with negative publicity of milk based sweets.

The dairy commodities market was dull and dark during Diwali. As expected the mahurat sale of ghee on diwali ignited traction in prices. There were numerous news in media which flooded the market and reinforced a positive sentiment amongst the sellers shown as below.

“The big fat Indian weddings, subdued for a while now due to the coronavirus pandemic, are likely to get the mojo back with an estimated 25 lakh weddings in just one month between 14 November-13 December….Mint”

“There are going to be 50 marriage dates in the next nine months.”

“Wedding bells send cash registers ringing at hotels, biz expected to be better than last year”…ET

” Global dairy price index is showing an upward trend since August 17 2021″ …GDT

Dairy Commodities prices began to soar

These news suddenly changed the complete landscape of the dairy commodities market. SMP and ghee were hovering around 230-240 in north and 200-220 in western part of the country. The rates changed to Rs 260-280 in north and Rs 230-Rs 240 in western parts. Same happen with the ghee prices also.

It may get dairy economists a little surprised. Technical analysis of Indian markets shows the following situation.

1. Indian dairy cooperatives still have huge stocks of Powder and ghee in the country.
2. The country is entering into flush season with availability of plenty of milk .
3. The SMP requirements for Milk reconstitution is minimal in the dairy plants as well as Ice cream plants in most part of the country.
4. In last few months despite the government subsidy for exports to a few cooperatives, the export volumes have not shown a significant rise.
5. The institutional buying for the next year’s summer may still take some more time.

Higher prices : A fundamental market situation or a trader’s game plan

There may be some apprehension on poor availability of milk due to rampant outbreak of LSD, FMD and HS in some parts of the country. The untimely rains in Some parts of South India may also cause postponement of flush by a few weeks. However even with these negative factors, the high dairy commodities don’t look to be sustainable .

The good part is that the stockists and the cooperatives may clear off as much of their older stocks at the good prices as possible. This will help them strengthen their cash flows and also to create new stocks for better rotation of their money. This will also be a good news for the farmers as the milk prices have again got increased in some parts post Diwali also. In Maharashtra the milk prices are stable after a long time and might see an increase soon.

It is very difficult to find a true reason behind this change. Still as long as it is helping the industry and farmers without any impact on retail consumers then it is good.

A blog by : Kuldeep Sharma, Chief editor , dairynews7x7