Inside Milk
Extreme heat has no effect on dairy market
In the week when heat records have been broken, you would expect the temperature in the dairy market to rise as well. Nothing is less true. Prices tend to go down. How come?
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Holiday mode is on on the dairy spot market. Almost all parties speak of little activity and relatively thin traded volumes. Only a single factory failure brings things to life. Although the hot weather is certainly a theme, this has not (yet) affected prices. The heat period is short, considering next week cooler temperatures are on the agenda.
Italy is no longer on the market
In the Netherlands, the DCA quotation for raw milk remains the same at €33 per 100 kilos (at 4,4% fat). What is striking is the large variation in assignments. In Northern Germany, prices are also trending sideways. For southern Germany the quotation drops by €1,50 to €35,50 per 100 kilos (at 3,7% fat). The decline is due to reduced Italian purchasing interest.
Meanwhile, butter prices continue to fall. This also puts pressure on cream prices. The European butter market is overcrowded with price levels of approximately €3.300 per tonne. This is due to the significantly increased milk production in countries such as Ireland and Poland. Although exports outside Europe have increased, this is not making any difference.
In the first 5 months of this year, European butter exports increased by 5% to more than 62.000 tons. In the same period, production increased by 1,2% to 970.000 tonnes, according to Eurostat figures. This means that only more than 5% of production is exported. The argument that European butter prices are attractively priced on the world market therefore does not hold water. The market expects butter prices to continue to fall.
Raw material value continues to decline
The quotation for skimmed milk concentrate is also falling again. In the short term, the upside potential of skimmed milk powder is limited and that puts pressure on concentrate prices. The DCA quotation drops by €60 to €1.800 per tonne. For the last quarter of 2019 and the period thereafter, various market parties are more positive about the sales opportunities on the global market.
This offers some starting points, but for the time being the raw material value of milk is under pressure. Although the market thinks that payout prices will fall further, Arla held the milk price same again for August. Next Monday, FrieslandCampina will announce the guaranteed price for the new month, and a reduction cannot be ruled out.