Clash of milk price, intervention and FrieslandCampina

Past successes provide no guarantees for the future. However, the last time FrieslandCampina asked members by letter to take it easy, it was not a success at all. This method is now being used to prevent more milk from being produced in the first half of 2018. This happens under the umbrella of phosphate, but here it clashes. Phosphate is manure accounting and is done on an annual basis. The milk price is a monthly instrument. 

Do the last liters make money?
The dairyman says 2 things. On the one hand they point to the consequences for obtaining a new derogation, but on the other hand there is the valorization of the milk. The latter has set the tongues in motion in the market. There is confidence that the largest dairy company has sufficient processing capacity, but the question is whether the extra liters will also generate money.

These are justified concerns, because the milk price and the daily market will become increasingly divergent towards the end of October. This is the milk price around €40 per 100 kilos. The value that milk represents, based on cheese, is more likely to be around €32 to €33 per 100 kilos. That shows a gap of €7 to €8. The Dutch spot price for week 42 is € 35,75 per 100 kilos of milk, delivered at 4,4% fat. The south of Germany quotes €37 per 100 kilos and the north €36,50 per 100 kilos of milk.  

What released the Anuga?
What happened after the Anuga? More milk becomes available again. In the Netherlands, but also Germany and France write green numbers. For the first week of October they show an increase of 3,3%, compared to 1 year earlier. It was possible to catch up at the fairs and that did not help people's mood.

There was discussion about developments in Brussels. What will European Commissioner Phil Hogan do with the intervention scheme for milk powder? Will there be a lower price or will he opt for a tender system? And what will happen to the 400.000 tons of skimmed milk powder from intervention? A player in the calf feed sector indicates that they are not looking forward to such volumes.

In any case, very little milk powder is used in recipes today. This can be increased to 100.000 tons, but at rock bottom prices. Then just put the product away as pig feed? In the meantime, the Americans fear the decision to sell product in Mexico. A vital market for the sale of American milk powder.

The market understands that intervention at a milk price of approximately €40 is inexplicable. However, the uncertainty about the progress of the intervention is bad timing. Buyers have adopted an apathetic attitude on almost all fronts. Even though things are not going very well, skimmed milk concentrate is yielding better returns. This costs 1.300 euros per tonne of dry matter ex factory. 

Milk price support
One support is that several parties hedged when prices were high. Currently, it is no longer possible to achieve such high prices and prices are crumbling every day. For example, the futures market had to give up more than €18 per ton for the December contract of Wednesday, October 19 on Thursday, October 100. The opening quote from October 19: €4.900 per tonne. ZuivelNL lowered the price to €565 per 100 kilos, but the current market is already talking about lower prices. More action is planned from week 45 onwards. The cream price amounts to 5,78 euros per kg ex work. 

Cheese also didn't make it through the Anuga unscathed. The higher supply figures have translated into more cheese, while a dollar exchange rate of €1,17 to €1,18 is working against exports. In Germany the quotation fell to €3,30 to €3,55 per kilo. The stock is described as normal. It conceals the fact that the film is offered in Germany at €2,80 per kilo and in the Netherlands the price is just under €3. Mozzarella takes an even harder hit and drops to €2,75 per kilo.

Turkish tender
There is only good news for cheddar. This comes in the form of a Turkish tender. There is talk of 2.000 tons, which makes sense in England and Ireland.

In addition, winter is approaching for the Irish, which means less milk. It is expected that producers will switch to cheddar, which gives room for mozzarella. 

As far as can be determined, the contracts for the last quarter have been covered. Which means that processors have made good use of the higher quotations. Things will become more difficult in the first quarter of 2018, although the first reports are not yet dramatically bad. Partly helped by the high price levels.

However, the developments outlined pose a danger, because they could spur a price drop. It makes a standstill by FrieslandCampina more likely, meaning all is not lost. Another issue remains the derogation. These are two arguments for keeping a cool head.