Is oil price getting less of a grip on dairy?

De oil price has been increasing since the end of 2017, but the recovery in the price of whole milk powder started earlier. Since the summer of 2016, the price of milk powder has been increasing again, with trial and error. For example, in February 2016 the price reached a low of $1.952 per tonne, before reaching $2016 per tonne in December 3.568.

Is oil losing control over dairy?
Does it mean that the oil price will have less control over dairy pricing? That cannot be said, because several factors come together in which the oil price does play an important role. For example, the traditional oil countries are important importers of dairy. More income from oil means there is more money left to spend on importing products.

A small 'but' is that countries (such as Algeria) have discovered that relying on oil entails a great risk. For example, less income from oil meant a threat to the food supply. That is why more money, which would normally go to the oil industry, has been released to invest in the agricultural sector. However, it will take years before countries can meet more of the population's demand.

Feed price is a risk
A second factor is the feed price. A higher oil price means that alternative fuels are coming back into fashion and therefore require more raw materials. To achieve this, the oil price will have to rise further. That question can be the feed prices and discourage milk production, which could result in less milk. The milk price may rise, but the bottom line is that the dairy farmer has less left over and sometimes even nothing. 

Without the oil countries, the global dairy market has come to rely more heavily on demand from China and other parts of Asia. The United States (US) must be right about Mexico. Russia was a major importer, but relied heavily on oil revenues. When they started to decline, the economy found itself in dire straits. It will probably take quite a few more months of higher oil prices to correct this and increase consumers' disposable income.

Oil price has a lot of influence
The conclusion that can be drawn is that the oil price has a lot of influence, but that the countries that are not dependent on oil have enough weight to put a floor in the market. Now that the oil price is picking up again, the basis for the milk price is steadily improving again; although there is a limit to that too. 

In the past it has been shown that an oil price that is too high actually has a negative impact on livestock farmers. This is due to higher feed costs and fuel costs, but also further down the chain; when packaging costs increase. Based on past trends, the optimal oil price for the milk market was between $85 and $95 per barrel. High enough to see sufficient income from oil countries, but low enough to counteract the negative effects of a high oil price.

In practice, however, this ideal does not exist. The global playing field is also very unsettled, which makes it difficult to estimate what the oil price will do. The way the flag is now hanging, it is good news for the livestock farmer. The oil price in relation to the price of milk powder.