Inside Milk
Is milkfat gearing up for Christmas rally?
The price of cream and butter has literally plummeted in recent weeks, but the market has now bottomed out. The question now is whether, and how much, prices can pick up?
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The prices of cream and butter have attracted negative attention in recent weeks. Both quotations yielded hundreds of euros per tonne. However, the downward trend has been broken this week. The DCA cream price even rises again by €100 to €5.400 per tonne. The price of butter is also not falling any further.
The reason for the change is the limited availability of the product. A trader says that milk fat has changed from a 'push market' to a 'demand market'. This is a result of the milk supply which, seasonally, sits in a valley. This valley is substantially lower than initially expected. For example, there is also less supply available in Eastern Europe (Poland), although milk supply there has remained reasonably stable.
Tight butter supplies
The increasing demand for butter and cream is a result of Christmas production. The question now is how butter and cream prices will move in the coming weeks. Opinions differ on this in the market. It is suggested that cold store supplies are tight. This, in combination with the low milk supply, can drive up prices. A 'Christmas rally' cannot be ruled out in advance. Partly because butter is on the futures market (EEX) is trading more expensively again.
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Others are cautious about a possible price rebound; A stable market is already a profit in their eyes, given that prices are already listed relatively high. Anyway; the bottom seems to have been reached in everyone and that is a positive signal for the foundation underpinning the milk prices that dairy farmers are paid.
The foundation under the milk price has been damaged by the recent fall in the price of milk fat. In the short (quarter 4, 2018) to medium term (quarter 1, 2019), corrections of a few euros per 100 kilos are likely. As long as cheese prices remain stable, the damage may be limited. The German cheese price (Gouda 45) remains stable for the time being at €3.200 per tonne.
Spot market milk
The low milk supply means that raw milk is rarely traded on the spot market. Dairy processors can largely accommodate the supply in their own factories. The volumes that are traded are sometimes the result of a factory malfunction. The DCA quotation for raw milk in the Netherlands remains at €35,50 per 100 kilos (at 4,4% fat, delivered).
The DCA quotation for raw milk in Northern Germany drops by €0,50 to €35,50 (at 3,7% fat, delivered). In the south of Germany the quotation also drops by €0,50 to €36,50 per 100 kilos, although there is good demand from Italy. This means that German milk is ranked higher than Dutch milk.
The DCA quotation for skimmed milk concentrate (MMC) drops by €70 to €1.430 per tonne. The decrease is a result of some extra supply from France. In addition, the MMC price has been too high for weeks compared to the price of skimmed milk powder; This skewed ratio has now been corrected.