Dairy market a roller coaster? That's how you overcome

The weather, politics and sentiment dominate the milk market. It makes the market erratic and unpredictable. For example, a year ago, summer was looked forward to with great concern. The cause of this was a surplus of milk and insufficient demand. Expectations were not met. Around week 20 the market started to rise again and continued to rise until Christmas. 

After a small hill, the roller coaster has been gaining height again since week 5. What else does the roller coaster have in store for 2017? And what tips come from the market? 

Tip 1: Historically high butter price
The price of butter is hitting historic highs. The price outliers are prompted by an incorrect estimate of the milk supply. In line with this, contracts are concluded for a product that does not exist. A lack of supplies supports this. When supply and demand are further aligned again, this can take some of the air out of the butter bubble. However, as things stand, low butter prices are no longer expected for 2017. 

This does not automatically mean that the levels bring in extra money. For example, 4 euros does not yet appear in the fat prices, which are used to determine the milk price. The years 2008, 2012 and 2014 rendered better. The culprit is the downward trend in protein. This means that for now and for the whole of 2017, liters are worth more than levels. The question remains whether additional feeding is worthwhile to improve levels. The tip is to think carefully about whether it is financially possible.

Tip 2: Less milk in the Netherlands?
The milk price is not only created by the Netherlands. As a result of the Phosphate Reduction Regulation 2017, dairy farmers are forced to remain alert. This has to do with the constantly changing regulations. This makes it difficult to look beyond the Netherlands, but the fact is that the milk price does not depend on the milk production of the Netherlands alone. 

The EU-28 recorded 13,48 million tons of milk for March. That is virtually the same as one year earlier. This may be due to the sharp decline in Germany (65.760 tons less). France (27.580 tons less) and the United Kingdom (19.640 tons less) also recorded minuses. These minuses are offset by pluses from Poland (49.670 tons more), Italy (25.430 tons more) and Ireland (23.650 tons more). The voluntary program to curb milk production came to an end in Germany at the beginning of May. This means more liters of milk within European borders. 

In the Netherlands, growth in milk supply has been skillfully blocked, but in 2018 there will be room to make adjustments again. Better milk prices usually stimulate growth, but against the background of existing stocks and developments in the EU, the advice is as follows: do not invest too quickly and do not count on a top milk price. 

In New Zealand the starting point is below 25 euros. It's good to keep that in mind in a free market. Despite the phosphate rights, the market is still free. 

Tip 3: Climate change works out well
Take advantage of the weather in the Netherlands. Regardless of the discussion whether or not the earth is warming, Dutch livestock farmers have been benefiting from very growing weather for the past 3 seasons. Unfortunately, this includes extreme downpours and locally violent gusts of wind. However, compared to France, Belgium and the south of Germany, Dutch livestock farmers mainly benefit from it. 

The 2017 harvest season got off to a smooth start after a cold start. While several livestock farmers can still fall back on last year's grass stocks. The abundant grass harvest is a valuable asset that may be underestimated. 

The derogation stipulates that 80 percent of the land must be used for grass, but with a reasonable growing season, such as in recent years, it may be time to think about whether more can be extracted from the ground. Fodder beets are also becoming increasingly popular and the call for local and GMO-free feed is increasing. 

Tip 4: Technology good or bad?
Dutch livestock farmers trust that technology can solve all their problems. That is an interesting statement, which was made during the Senate debate on May 16. This only underlines how many possibilities and opportunities there are in the field of technology. 

The end of the milk quota should have created room for new innovations. This is because no more money will flow from the sector to the rights to produce. The phosphate rights now block this. Money can only be spent once. This means that the choice is more likely to be something that yields immediate returns, rather than an in-depth investment. This could be, for example, in response to issues surrounding ammonia, energy and phosphate. Politics is also aiming for a more old-fashioned form of dairy farming, namely organic.

This conflicts, because the techniques that are now becoming most attractive relate to the climate in the stable. The more comfortable the cow feels, the more milk. The roller coaster that dairy prices are on encourages this even more. Investing in something that does not immediately pay off can make the free fall even worse. 

The roller coaster is a challenge for milk processors, but for dairy farmers the challenge is even greater. They are not in the first cart and therefore cannot immediately see when a free fall is approaching. Only in the course of 2018, when it is expected or hoped that stocks will have the opportunity to decrease, will a more stable period emerge. 

Time has shown that these phases are becoming shorter. This means that an entrepreneur must take into account that loops may occur again. The diversity of companies makes a ready-made answer impossible, but there are tools.