After the dairy market recovered in 2016, the milk price reached a peak in the autumn of 2017 (with prices above €0,40 per kilo). A 3-year cycle seems to be developing, meaning a price drop in 2018 is inevitable. ABN Amro expects this in a recently published report on the dairy market.
The position of the Dutch dairy sector on the world market is unique. However, due to various environmental constraints, this sector cannot continue to grow. The ABN Amro report states that this will make Dutch milk a scarcer product from an international perspective.
"Dairy products are faced with the challenge of achieving more turnover per kilo. This means that the existing milk production is sold more expensively by focusing on high-quality and sustainable dairy products. For example, fresh products, organic dairy, branded cheeses and cheese specialties," says Pierre Berntsen, director Agricultural Companies at ABN Amro.
Milk price falling in 2018
The prices of butter and cheese, which in the European Union (EU) had risen above the world market, must become competitive again. However, the high prices provoke extra supply, resulting in a considerable milk flow. This requires a strong export performance in 2018, but the strong euro is against us.
According to the ABN Amro report, the transition from lower bulk prices for butter and milk powders is normally a gradual process. However, when the European Commission indicated that it would limit the intervention scheme for skimmed milk powder in 2018, the market for foil cheese also weakened. As a result, the cheese price fell rapidly, which means that ABN Amro expects a significant drop in the milk price early in 2018 to be inevitable.
In addition, it appears that the price development in the second half of 2018 will mainly be influenced by the milk supply in the EU and the Netherlands. In any case, it is clear that production in the Netherlands will decrease as a result of the new phosphate legislation.
What else does ABN Amro say?
The report also shows that the yield of milk fat will remain at a higher level for a longer period of time. On the other hand, the extreme butter prices of 2017 will no longer be achieved for the time being. The price of skimmed milk powder will also come under pressure in the coming years due to the large stock in intervention.
ABN Amro has noticed that Dutch dairy farmers increasingly have to lay a strong foundation for a product with added value. Sustainability features are playing an increasingly important role in this respect, including cooperation between A-ware and Albert Heijn is cited.
The further future
Over the past decade, a 3-year cycle seems to have developed: a shortage leads to high prices. Production will increase and that will lead to a surplus. As a result, milk prices will fall again. ABN Amro anticipates that, after the good year of 2017, the dairy farmer will have to prepare for more difficult years (2018 and 2019). However, in 2020 one can look forward to the next peak in the market.
View the full report of ABN Amro . here.
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