Dairy market is as firm as a house

The global demand for dairy remains intact. Butter prices have clearly indicated this for some time now. Osinga's own research shows that the price of butter in some supermarkets is below the latest contract prices, which dairies and retail recently agreed upon. This indicates relatively little margin for retail and a continued high demand for this product.

Traders grumbling
The high butter prices are now causing European traders to grumble. They see various export markets dropping out because others can supply the butter for less. The others are mainly the United States. This is partly because the euro is high compared to the dollar.

According to Osinga, however, this raises another question: isn't the European Commission indirectly presented with the price for its milk reduction plan at the beginning of this year? "Many dairy farmers in EU countries collected the premium at a time when the market had already recovered. Due to the reduction plan, production lagged behind and thus created scarcity. A high butter price may be nice now, but if it costs export markets, it costs That may also apply in the longer term. There will be different times and customers that you lose are usually not easy to get back."

Hardly any more milk supply
The milk reduction plan of the European Union, and in the Netherlands also that of FrieslandCampina, is one of the reasons for less milk supply in Europe earlier this year. In addition, the drought in France and parts of central and southern Europe also plays a major role. This results in negative milk supply figures for Germany (-2,6%), France (-3,8%) and the United Kingdom (-0,4%) at the beginning of July. 

On the other hand, there was an increase of 3,1% in May in Poland. Italy also showed a 0,9% increase in milk supply in May. "The European Commission assumes a small increase for the whole of 2017, but I think it will be a small minus," says Osinga. "This is mainly because the drought has a braking effect. The Germans also say that they do not see a strong increase themselves."

According to the dairy watcher, it is also unlikely that the milk supply will put pressure on prices in the short term. Global supply is only slightly higher than last year, while demand is clearly higher. As one of the major powers on the world dairy market, the United States produces more. However, Australia, like the European Union, does not. A slight plus is expected from New Zealand.

Protein prices are lagging behind relatively
While butter prices have been doing well for a long time, yields for (skimmed) milk powder are lagging behind. The cars for sale of 100 tonnes of milk powder, by the Commission, had a negative impact on price formation. Osinga states that there are tenders for lots of skimmed milk powder from storage, but that the trade has so far offered too little. "It just depends on who gives in first: the trade that will offer more or the Commission, because it believes it has to get rid of the stocks."

“Trade plays the game,” says Osinga. "They know that there are 352.000 tons of skimmed milk powder in storage and that the Commission has to sell this. With the sale of these 100 tons, the trade thought that things were going 'loose' and the price immediately fell. In my opinion, a wrong move by the European Commission. The market will probably demand milk powder even more emphatically in a while, there is no reason to be restless."

What may make a difference is a new option that the European Commission has opened up for itself. In short, this means that member states can also buy the powder and then distribute the profits to food banks. It is difficult to estimate how many member states use this to buy and trade part of the powder, but it will have some effect, Osinga expects.

Futures market positive
Positive signals also come from Kiel. The university calculated what the milk price should be based on the EEX futures market. Based on this, the milk price in November and December would be above €0,40. "Such a prediction does not say everything, of course, but you should no longer underestimate this futures market," says Osinga. "You can tell that the interest of traders and dairy companies is increasing and the supply of butter and skimmed milk powder to be traded is also increasing."

Chinese demand difficult to substantiate
In summary, the market is reasonably stable and the signals are green for the first time regarding a minimal stabilization of the milk price in the coming months. A slight increase is even possible, Osinga says based on his analysis. It only seems to get exciting again in the fall.

New Zealand's milk production for the new season gets underway in September and October. Production is expected to be slightly higher than last year. The question then is to what extent China will absorb that extra milk. If that is disappointing, the New Zealanders will bring extra milk to markets in North Africa, among others, and the European milk price will come under pressure. 

"The current signals from China about demand are positive," says Osinga. "Rabobank Shanghai expects slightly less strong growth, but still growth of 10%. That is of course still substantial. However, reporting on Chinese demand for dairy has not always proven to be reliable in recent years. On As far as I'm concerned, that's an area I'm looking at and I'm curious to see how the market will actually move from October onwards."