Dairy farmers trade extensively in phosphate rights

In the first half of 2017, there is a stable milk price at a higher than expected level. This is how Rabobank outlines the milk market in this year's second quarterly report. It is striking that the bank reports many buyers for phosphate rights. 

According to Rabobank, dairy farmers are fully engaged in the trade in phosphate rights. The phosphate rights system will start in 2018 and is taking shape. The bank mentions the high prices for phosphate rights and LU references, as Rabobank has not yet provided financing for this. The bank does not indicate how high the prices are.

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As a result, the costs at purchasing companies rise sharply, which can be at the expense of other investments. Rabobank expects that sufficient rights will be released in the coming years by companies closing down. Incidentally, it is still uncertain whether phosphate rights will be granted at all. This is because a new derogation for broader fertilizer standards is not yet a race. 

On course
According to Rabobank, the implementation of the phosphate reduction plan is on track. In the first and second period, dairy farming on balance reduced 7,1 million kilos of phosphate from the intended reduction of 8,2 million kilos. Partly due to the phosphate reduction plan, 2,6% more cows were slaughtered in Europe in the first quarter. During that period, the number of cow slaughter in the Netherlands rose by no less than 46% compared to last year. Also in Ireland 19% more cows were slaughtered.

Milk prices stable
In the first 6 months of this year, milk prices in the Netherlands moved to a stable level, with price differences between processors decreasing. The better milk price has improved the liquidity position of dairy farmers. The milk market again offers space to build up buffers.

In the dairy market, the wedge between butterfat and protein is widening. In the period January to June, the butter price increased by €900 to €4.900 per tonne. The price for skimmed milk powder rose slightly to approximately €1.900 per tonne. This means that the price difference has increased to almost €3.000 per tonne.

LU control visible in milk supply
European milk supply in the first quarter of 2017 shrank by 1,1% compared to the same period last year. The Netherlands produced 0,6% more milk in the first quarter than last year. In April and May, the Dutch milk supply was 0,5% below the 2016 level. A decrease that, according to Rabobank, is due to the LU scheme from the phosphate reduction plan. 

Forecasts
On balance, Rabobank expects 0,8% less milk in Europe in the second quarter compared to last year. In the third quarter, the European milk supply will probably grow by 1%. In the last quarter of this year, 2,2% more milk is expected compared to last year. Rabobank is also counting on more milk in the first half of 2018. On the other hand, there is rising dairy consumption in Europe and more demand from China.  

Click here for a link to the report. 

Wouter Job

Wouter Baan is editor-in-chief of Boerenbusiness. He also focuses on dairy, pig and meat markets. He also follows (business) developments within agribusiness and interviews CEOs and policymakers.

w.baan@boerenbusiness. Nl

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