2017: a run on the milk market

It looks like the 2017 market is a done race. For example, in the first week of December there was already talk of disappointing retail sales, but this week that trend is once again underlined. The prices for week 50 therefore appear to show a division from fairly steady to approximately Wednesday and lower towards the end of the week. A starting signal for the Christmas recess?

Room price in min
In week 49, the cream price drops to €5,20 per kilo ex factory, a minus of €0,20 compared to 1 week earlier. This decline is a derivative of the division in the market and therefore does not do justice to the higher prices at the beginning of the week and the lower ones at the end, but it does indicate the trend.

As a result of the end of Christmas shopping, it is the butter makers who now have to support the price of butter. ZuivelNL has already reduced it to €466 per 100 kilos. For direct delivery, the trade sets the price at €4.600 to €4.700 per tonne ex-works. However, the first quarter yields a price of €4.100 to €4.200 per tonne, a write-down of just under 11%.

Not only is the price of butter falling, but also that of whole milk powder. A product that is mainly produced on demand and therefore does not have large stocks. ZuivelNL lowered the quotation to €249 per 100 kilos, a minus of €3. The Netherlands and Ireland are among the countries with the lowest quotation, while other European member states still hold on to €2.650 per tonne.

However, the last Global Dairy Trade yielded a plus of 1,7% for whole milk powder. This amounts to an average of $2.830, approximately €2.400, per tonne. It means that the EU is still a bit too expensive for the world market. 

Problems in skimmed milk powder and cheese
The two products that cause the most concern are skimmed milk powder and cheese. The prices of Gouda and Edam foil dropped on the stock exchange in Germany to €2 to €2,80 per kilo, demand is described as good with a weaker price.

In Germany, the price of whey for the food industry rose to €750 per tonne, against a stable €570 per tonne ex-factory for animal feed purposes. In the Netherlands, the price remained at €58 per 100 kilos. Remarkably, the trade indicates that the price is slightly higher at €610 per tonne. It indicates that less cheese is being made and whey is price-bearing.

There is more pressure on skimmed milk powder. Here there is mainly uncertainty about the follow-up of the intervention measures. The hope is that there will be more clarity in the near future about the course that Phil Hogan, European Commissioner for Agriculture and Rural Development, will take. Will the purchase at a fixed price remain intact or will he switch to a tender system?

Under the influence of this development, skimmed milk concentrate drops to €950 per tonne of dry matter ex-factory. At the GDT, Arla skimmed milk powder ($1.620 per tonne) became cheaper, but New Zealand product ($1.745) performed better for February delivery. ZuivelNL quoted €145 per 100 kilos. Suppliers are offering €1.400 to €1.450 per ton ex works, but due to the wait-and-see attitude of buyers, little business is taking place.

Prognosis
The price for Dutch spot milk in week 49 amounts to €26,25 per 100 kilos (delivered at 4,4% fat). In the north of Germany the milk costs €27 and in the south it also costs €27 (delivered at 3,7% fat). There is no mention of large volumes. It does appear that processors are preparing for the holidays, which means more sales are being made at lower prices. 

In the meantime, milk supplies are picking up again in both Germany and France; after reaching the lowest point in week 46. In the Netherlands too, the positive numbers continue and milk production has the potential to approach the level of May 2017. Current developments mean that there will be more pressure on the milk price after December, depending on how processors have sold products in advance.

The futures market shows that June will be the turning point. Something that has to do with the expectation of less milk, because dairy farmers will then slow down in order to benefit from phosphate rights. Only the levels in the milk may still be an asset in early 2018. At the same time, protein, such as lactose, is setting higher prices again. The sentiment is not good, but 2018 is definitely not a done race yet.

$1 = €0,8485          

More futures market The spot milk price compared to the milk supply over the years.