Four obstacles to the milk price

The price for free raw milk increases in week 8 Netherlands to €26,50 per 100 kilos (delivered at 4,4% fat). It is a plus of €1 compared to 1 week earlier. In Germany, the price in the north rises to €24 per 100 kilos, compared to €25 in the south of Germany. These are pluses of €2.

Faster increase in cream price
For context: the Dutch price for free milk increased by 3,9% in percentage terms. The cream price, on the other hand, rose by 1% in 16,3 week to €6,05 per kilo ex work. This makes the plus in the price of free milk seem economical.

This is the first hurdle, because how do you convert a protein price (which is under pressure) and a price explosion in fat into an optimal milk price? In 2017, processors succeeded in this and received the milk price has a chance of rising towards €40. There was a delay and the milk price rose much less than the cream price. 

This is where the depressing effect of protein becomes visible and will plague the market again this season. It appears that 4.300 tonnes have been sold from intervention, at prices of €1.100 to €1.200 per tonne. The ZuivelNL quotation was €135 per 100 kilos, a big gap. The products from intervention are not representative, but they do have a depressing effect. It is the reason why skimmed milk scores below par and why skimmed milk concentrate does not exceed €775 per tonne of dry matter ex-factory. 

What does the milk supply do?
The second obstacle is the milk supply, or even more specifically the expectation of a higher milk supply. In Ireland and England, the first cows are already going outside, marking the start of the new season. In Germany and France the pluses are slightly lower again, but are still above 3%.

In the Netherlands, slaughter figures are also declining, in combination with the demand for heifers, it is a sign that the supply will not decrease immediately. At the end of April it will become clear what expectations have been fulfilled and then the market can finally determine its course. Is it not too bad or will the extra liters be fatal for the rest of the year?

Expensive euros difficult for export 
Then there is another hurdle in the form of the euro. The currency has been trading at a high level in recent days. It poses a challenge for dairy exports, in combination with rising prices. When it comes to skimmed milk powder, the Netherlands is in the middle bracket.

However, in terms of butter prices, the European Union is starting to get out of step. Arla has already indicated that currency exchange rates will probably have a negative impact on turnover. It is also a point of attention at FrieslandCampina and is therefore definitely an obstacle to higher milk prices.  

Global Dairy Trade
A final challenge is the Global Dairy Trade (GDT). Still a major mood booster, despite not being a deal breaker in terms of volume. Less milk in New Zealand helps prices rise. The question now is whether the auction has already shown its muscles, or whether prices can increase even further. 

On the European futures market for butter, €5.000 per ton appears to be the breaking point for now. New impulses are needed to put the wind back in the sails of the price; something the next GDT may be able to achieve.

No losing battle
In short: a higher milk price is not a losing battle. Anything is still possible and even a repeat of 2017 cannot be ruled out this early in the season. However, the fact that the challenges are great, and the chance of lower prices is much greater, is underlined by these 4 obstacles.