Falling milk price affects returns

The Countus Dairy Cattle Index has shown a significant decline in recent months. It is expected that the lowest point has now been reached.

After a sharp decline in October, the Index showed a fluctuating picture in November. The Index closed in week 49 at 85,1 points, where 100 points is the 10-year average. In mid-September it was still above 100 points; this means that returns in the sector are under pressure.

Falling milk prices
It is possible that the downward trend is not yet experienced in practice, because milk prices usually react to developments in the market with a delaying effect. The milk prices have shown a downward trend since November and are therefore responding to cheese and butter prices, which have declined considerably in recent months.

Dairy farmers also have to contend with high manure disposal costs† For example, the DCA collection fee in the south of the Netherlands is above €20 per tonne. Prices are lower in other parts. The high collection charges are partly due to the wide supply of pig slurry. The supply of cattle slurry per se is not excessively wide.

Also the feed prices increase, the price of A chunk rose in November to the highest level since 2013. Roughage prices (straw, silage corn en meadow hay) have risen significantly in recent months.

Stable prognosis
It is expected that the chunk prices not rise (much) further. There are also signs that butter and cheese prices have reached a bottom, where the price of skimmed milk powder is in the elevator. These developments provide clues for the milk price.

Further corrections appear likely in the first quarter of 2019. In addition, the uncertainty factor in the dairy market is still quite large. All this means that the Index presents a stable forecast.

Wouter Job

Wouter Baan is Head of Meat & Dairy at BoerenbusinessAt DCA Market Intelligence, he focuses on dairy, pork, and meat markets. He also monitors (business) developments within agribusiness and interviews CEOs and policymakers.

w.baan@boerenbusiness. Nl

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