Corona seems to be pulling dairy market down

The lock appears to have been removed from the dairy market this week. In recent weeks, the market itself seemed to be in an intelligent lockdown in response to the consequences of the coronavirus. Buyers only place orders that are absolutely necessary and sellers do not insist. Combined with a relatively low seasonal milk supply, a certain balance in the market could be maintained.

That balance now seems to be disturbed and the same coronavirus is also responsible for this. In recent days, France and Germany have announced a new lockdown that appears to last for the entire month of November. The Netherlands also indicated that the current corona measures, including the closure of the catering industry, will last until the first weeks of December. 

Letting go of more supply
These announcements make it clear that sales to food service will not pick up in the next 4 to 6 weeks or will probably decline even further. Although retail partly compensates for this with higher dairy sales in the supermarket, this uncertainty seems to be a signal for sellers to release more supply onto the market. This is immediately felt on the markets for whole and skimmed milk powder and cheese in particular.

The past two trading days have been particularly hectic on the cheese market, as demand has also fallen sharply. The DCA quotations for foil cheese, cheddar and mozzarella have all fallen as a result. For example, the DCA quotations for foil cheese Gouda and Edam fell by €2 and €65 per tonne respectively. Cheddar curd and mild were also marked down by €60 per tonne each. The DCA quotation for mozzarella fell by €60.

Skimmed milk powder also succumbed to the corona pressure. The number of transactions was already low last week due to moderate demand. As a result, sellers seem to be taking their money for granted and are trying to find out whether they will approach buyers at lower levels. The DCA quotation for skimmed milk powder therefore fell by €55 per tonne. Whole milk powder cost €45 per tonne. 

Price pressure and exchange rates
Cream also makes a similar movement on the fat side. The DCA quotation for cream drops by €110 to €4.120 per tonne of finished work. There are no buyers due to the loss of sales in the food service and exchange rates also play a role in the Northwest European market. For example, a weak Polish zloty pulls down the price of Polish cream, which also puts pressure on German cream.

The DCA quotation for butter remained stable this week with only a minimal write-down of €5 per tonne to €3.360. However, this seems to be the calm before the storm, because butter, like cheese, powder and cream, has become a buyer's market. On the back end, butter also appears to be weak, with trading for the first quarter of 2021 taking place at lower levels than current butter quotations.

Support quotes
This is also symbolic of the current dairy market, where everyone stays close to home and mainly concludes short-term transactions given the uncertain market factors caused by corona. Sellers cling to the idea that stocks are not large and therefore a lot of dairy products still have to be purchased in the run-up to the Christmas weeks. The extent to which this can support quotations on the dairy market will become clear in the coming weeks. In any case, the mood in the trade is not very optimistic.

It remains to be mentioned that the DCA quotations for raw milk managed to hold up this week. The very thin market with relatively little supply plays an important role in this. DCA spot milk Netherlands even costs €0,50 more per 100 kg and amounts to €36,50. The DCA spot quotes for Northern and Southern Germany are creeping closer to €36 and €36,50 per 100 kg respectively.

Click here for explanation of the DCA quotations (liquid) 
Click here for explanation of the DCA quotations (cheese)